What’s The Best Business Structure For You?

Opening the doors your first day of business feels something along the lines of meeting your soulmate and having your first child. But what really makes your business sink or swim is the prep work you do ahead of time. Along with the business plans and the marketing strategies, an important piece of the puzzle is how you legally structure your business. Your business structure affects your taxes, your ability to raise funding, and also in some ways, your flexibility as a business owner. In this Starting Your Business, we’re exploring the five most common types of U.S. businesses along with some of their pros and cons.

Five Common U.S. Business Structure Types

This is a quick look at these common business structure types. For more information on the tax implications of each one, the IRS provides a handy guide. And if you’re interested in the legal side, NOLO has an easy-to-understand resource here.

Sole Proprietorship

A sole proprietorship is just like it sounds: you doing your business. In a sole proprietorship, you are the business. The business runs under your name, and you’re personally, financially and legally responsible for debts and lawsuits.

The good.

This is the easiest way to form a business. You don’t have to fill out mountains of paperwork or pay heavy fees just to open your doors. It’s just you sharing your genius with the world.

The bad.

If, heaven forbid, one of your customers decides to sue you, or if your business goes bankrupt, guess whose personal assets end up being at stake? That’s right. Yours. If you’re in a highly regulated industry or doing work with high liability, you should probably consider one of the other business types.


While there are a few different types of partnerships, including some that limit liability and management, a basic partnership is essentially the same as a sole proprietorship. Only in this business structure, you’re in business with someone else. Taxes and liabilities are similar.

And while no paperwork is necessarily required, we always want to Begin With The End In Mind. You need an agreement in place to handle how you’ll exit, what to do if there are disagreements, how profits are divided, etc.

The good.

It’s a fairly simple setup. But that’s about it.

The bad.

There is always the possibility of butting heads with your partner. If they make a bad business decision, you’re equally responsible. (Can we just say yikes!) And if your partnership is not set up correctly, you could face sharing profits equally with a partner who doesn’t carry their weight. Partnerships aren’t bad by design, but good legal advice is a must-have for this business structure.

Limited Liability Company

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