When starting a business, you’ll need to decide what kind of legal structure it will operate under. This decision will affect your personal liability and your taxes, among other considerations.
The main business types include sole proprietorships; partnerships; limited liability companies (or LLCs); and corporations.
Sole proprietorships and partnerships can be good ways to test a business concept before evolving to a more formal structure.
Sole proprietorships are the easiest to form but your business assets and liabilities are not separate from your personal ones, and you can be held personally liable for any business obligations and debts.
Partnerships are good for two or more people when it comes to owning a business, but the amount of liability can differ based on whether the business is a limited partnership or a limited liability partnership.
An LLC is a more formal business structure with a variety of requirements and can protect owners from personal liability should the business be faced with a lawsuit or bankruptcy.
Corporations are more costly to form and require extensive records and reporting. An advantage of a corporation is that a business will also be able to sell stock to raise funds.
Since each business structure can come with its own tax concerns and requirements for forming and operating the business, it is recommended that you consult an attorney, an accountant, or a business counselor to see which option might be best for your situation, and what guidelines you’ll need to follow.
Taking the time to do your research can clarify what business structure might be best for you.