4 Most Common Business Structures in the US

Sole Proprietorship

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✔️ Pros: Simple and straightforward
❌ Cons: Your liability includes your personal assets
🧾 Tax consideration: Pass-through entity (note: you must report business profits/loss as part of your personal income tax return)

A sole proprietorship is the default business structure for new small businesses owned by a single person. It doesn’t legally separate the business and the owner, meaning you’ll be personally liable for business debts and challenges. And, it’s not the best option if you’re looking to raise funds or get investment into your company.

That said, choosing a sole proprietorship is a quick, simple, and low-cost way to test the waters with your business idea. You get total control over your operations, and the tax process is pretty straightforward, which is great when tax season comes around.

General Partnership

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✔️ Pros: Share responsibility with your partner(s)
❌ Cons: Every partner is liable for the actions of other partners; personal liability still applies
🧾 Tax consideration: Pass-through entity (note: partners are individually responsible for reporting their share of the business’ income on their personal tax returns, and you may also need to submit forms as a partnership entity)

Whether you choose a sole proprietorship or a general partnership as a new business ultimately depends on how many owners there are. A general partnership accommodates businesses with two or more owners, but your business isn’t recognized as a separate legal entity yet.

The profits, risks, and liabilities are shared between the owners – if one partner can’t pull their weight or causes trouble for the business, the consequences fall on everyone’s shoulders. However, if you have a trusted relationship, a general partnership is a good option if a group of you has a business idea to try out.

Limited Liability Company (LLC)

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✔️ Pros: Legal protection of personal assets in the case of liability, bankruptcy, lawsuits, etc.
❌ Cons: Higher fees than sole proprietorship and partnership, more complex tax processes
🧾 Tax consideration: Pass-through entity (note: you must report business profits/loss as part of your personal income tax return, and LLC members must pay self-employment tax, so be sure to look into this if you opt for this structure)

A Limited Liability Company (LLC) combines the partnership and corporation structures. Your business can have multiple owners, and it will be registered as a separate legal entity. This is the biggest advantage of choosing an LLC over the more risky sole proprietorship or general partnership track, because your personal assets will be protected.

I recommend registering as an LLC if you run a small or medium-sized business, especially if your operations and sales are growing. It’s a flexible option, but be warned that the tax process will be more complex than running a sole proprietorship, and some US states might force you to dissolve the business if an owner leaves or joins.

Corporation

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✔️ Pros: Greater liability protection, and you can issue stock shares
❌ Cons: Complex and expensive process to set up and maintain
🧾 Tax consideration: Not a pass-through entity; corporations must file corporate tax returns annually (shareholders who receive dividends are taxed on these individually too)

Finally, a corporation is really the top tier of business structures, catering to industry leaders and established businesses, particularly if you’re looking to raise funds. Once registered as a corporation, your business is completely separate from its owners (for corporations, this is typically multiple shareholders).

There are three main types of business structure under the corporation umbrella:

• C corporation (C-corp)
• S corporation (S-corp)
• B corporation (B Corp)

For small business owners, setting up a corporation can be a long-term goal, but it’s a complex and expensive process when you’re just starting out. And, you won’t really need the added protections or privileges of a corporation structure unless you’re a real titan of business.

Depending on your business needs and where you’re at in your entrepreneurial journey, I suggest making sure you consider these different factors (such as taxes and liability) before you register.

Which Business Structure Is Best for You?

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So, which business structure is best for you? It’s a complex decision! In a nutshell, if you’re just starting your own business, you’ll be good to go with a sole proprietorship. If you have a trusted business partner, you could set up a general partnership to share the responsibility. And, if you want extra protection for your personal assets, I highly recommend an LLC, which treats your business as a separate legal entity.

As for corporations, this structure is usually for much larger businesses. It can be complex and costly to set up, so make sure you have the resources to deal with this if you choose this route. Above all else, seek professional legal advice if you’re ever unsure about what’s best for your business.