4 Business Types to Know Before Starting a Company

Business Structure – Grand Opening

If you have plans to start your own business, then one of the most important things you need to understand are the different types of business classification – and the laws that accompany them.

Here are four different business structures for you to consider:

Sole Proprietorship

The sole proprietorship is the simplest form of all business entities. This is because the business is not separate from the business owner; therefore, it is not a legal entity. Sole proprietorships are easy and the least costly to set up, and there are no business laws that forbid mixing business and personal funds. On the other hand, the business owner is personally liable for any lawsuits filed against the business, so personal assets can be assumed to pay debts or settlements. Income and losses are filed on the personal income tax return.


The partnership involves two or more individuals who contribute money, property, labor or skill to the business and expect to share in its profits and losses. You may structure the business with general partnerships and limited partnerships, with the latter only serving as investors. General partners take on the operation of the business and assume liability for the partnership; therefore, they can be personally responsible for business laws that apply. In a partnership, there are certain tax advantages that make this type of arrangement appealing. Consult a business law attorney about taxes.   


The corporation is a separate, legal entity from its business owners and is guided by a board of directors. Shareholders in the corporation are not personally liable for the actions of the business, and any liability is limited to the business assets. One advantage to filing as a corporation is the special corporate tax rate; however, small businesses filing as a corporation need to consider the potential double taxation on the business’s net income and the taxes that shareholders must pay on dividends.

Limited Liability Company (LLC)

The limited liability company is a separate, legal entity (similar to a corporation) that enjoys the tax advantages of a partnership structure. An LLC enables a traditional partnership structure that protects business owners from personal liability or business debts, while distributing income to partners to be taxed on their own personal income tax returns. For some business owners, this offers the best of all business classifications as it offers tax advantages over the limited partnership.

Which business type should I choose?

Before you file a new company as one of these business classifications, be sure to consult a business law attorney to see what your legal obligations might be. The corporate attorney will know the right questions to ask in order to determine which structure offers you the most advantages and flexibility.  

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