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How Do You Choose The Right Business Structure?

On Behalf of | May 19, 2023 | Firm News

How do you choose the right business structure?

Choosing the Right Business Structure: Types and How to Decide

When starting a business, choosing the right business structure is a crucial decision that can affect your taxes, liability, and management approach. There are four main types of business structures: sole proprietorships, partnerships, corporations, and limited liability companies (LLCs). Each type has its own advantages and disadvantages, so it is essential to pick the one that suits your needs.


Sole Proprietorships

Sole proprietorships are the simplest and most common type of business structure. They are easy to set up and have minimal regulations. However, the owner is personally liable for the debts and obligations of the business, which means personal assets may be at risk if the business is sued. For example, if you own a business making jewelry and call yourself “ABC Jewelry Company” but never register anywhere, you are likely a sole proprietorship.  



Partnerships are similar to sole proprietorships, but they are owned by two or more people. Partners share profits and losses and manage the business together. Partnerships are relatively easy to establish and maintain, but partners have unlimited liability and could lose personal assets if the business is sued. General partnerships have all partners liable for the business’s debts, while limited partnerships have general partners with unlimited liability and limited partners with limited liability. Partnerships can be legally established whether they are registered or not.  If you and a business partner both work ABC Jewelry Company, you are likely a partnership. 



A corporation is a separate legal entity from its owners, meaning the corporation’s debts and obligations are not the owner’s personal responsibility. Corporations are more complex to set up and maintain than other business structures, but they offer advantages such as limited liability and easier access to capital. Corporations can be large like Pepsi Co. or much smaller, like one owned by just a few people. 

Incorporating a business creates a separate legal entity that provides owners with limited liability protection, meaning their personal assets are not at risk for the corporation’s debts and obligations. Corporations are more complex to establish and maintain than other business structures, but they offer several advantages such as perpetual existence, easier access to capital through the sale of stocks, and the ability to raise more funds. Additionally, corporations allow for better tax planning opportunities, as they can often reduce the overall tax burden on the business and its owners.


Limited Liability Companies (LLCs)

LLCs are a hybrid business structure combining features of corporations and partnerships. They offer limited liability, like corporations, but are easier to set up and maintain, like partnerships. LLCs are a popular choice for small businesses seeking flexibility and protection. LLCs are very popular.  Many very small businesses choose to become LLCs because of the ease of setting them up.  


How to Choose the Right Business Structure

Consulting an attorney can help you understand the pros and cons of each business structure type and select the one that aligns with your business goals.


Contact Us for Business Structure Consultation

If you need help deciding which business structure is best for your needs, we offer consultations to assist you. Contact us today to learn more!