As you work through the steps of starting your business, you’ll need to choose a business structure. The choice you make will affect the protocols you’ll follow, the taxes you’ll pay, and how much of your personal assets are at stake in the event of default. Because so much is riding on this choice, it’s important to take time to review your options and find one that best suits your needs.
What are my choices?
Most owners choose one of these eight business structure options:
- Sole proprietorship
- General partnership
- Limited partnership
- Limited liability company (LLC)
- C corporation (C corp)
- S corporation (S corp)
- Nonprofit
- Cooperative (co-op)
Which one is right for my business?
Many business owners choose an LLC or S corp as a business structure because they offer some important protections. Before following suit, consider all of your options. The structures differ in their ownership rules, liabilities, taxes, filing requirements, and other critical factors, including how the business can raise money.
What are the key differences?
In this chart, you'll find a high-level overview of the differences. Of course, rules can vary by state. Be sure to speak with an attorney and a person from your state’s Secretary of State office or their Department of Taxation get a true comparison.
Structure | Who can own it? | How much personal liability will I have for | What are my tax obligations? |
Sole proprietorship | One person | Unlimited | Personal taxes |
General partnership | Two or more people | Unlimited | Personal taxes
Self-employment taxes, except for limited partners |
Limited partnership | Two or more people | Unlimited for general partners
Minimal for the limited partner | Personal taxes
Self-employment taxes |
Limited liability company (LLC) | One or more people | Minimal | Personal tax
Self-employment tax |
C corporation | One or more people | Minimal | Corporate tax |
S corporation | One to 100 U.S. citizens | Minimal | Personal tax |
Nonprofit | One or more people | Minimal | Tax-exempt |
Cooperative | One or more people | Limited | Corporate tax |
Let's dive into the details so you can choose the business structure that's right for you.
Sole proprietorshipA sole proprietorship is a business that’s owned by one person. The owner has full control of the business and full discretion over the decisions that are made.
How it’s formed:
What's great about this option:
The drawbacks:
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General partnershipA general partnership is a co-ownership arrangement. Here, two or more people share legal and financial responsibility for the business.
How it’s formed:
What's great about this option:
The drawbacks:
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Limited partnershipA limited partnership is an arrangement that includes one or more general partners who have full legal and financial responsibility for the business and one or more partners whose liability is limited to the amount they invest in the business.
How it’s formed:
What's great about this option:
The drawbacks:
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Limited liability companyA limited liability company (LLC) combines elements of a partnership and a corporation. Similar to a partnership, the LLC allows owners to avoid paying corporate-level income taxes because the owners report the business’s profits and losses on their personal income tax return. And, like a corporation, the LLC helps protect owners’ personal assets from the business’s debts and liabilities.
How it’s formed:
What's great about this option:
The drawbacks:
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C CorporationA C Corporation (C corp) is a legal structure for businesses with one or more owners. Through this structure, owners’ personal assets are typically shielded from the business’s debts and financial obligations. Businesses that use this structure have an elected board of directors, adopt bylaws, issue stock, hold shareholder meetings, file annual reports, and pay annual fees related to their formation. They are taxed separately from their owners, and the owners also pay tax on the income they receive from the business.
How it’s formed:
What's great about this option:
The drawbacks:
If you plan to issue stock but won’t publicly trade shares, you may consider organizing as a close corporation. In this structure, you and a select group of individuals may own and operate the business without dealing with some cumbersome reporting requirements or outside shareholder pressures. Speak with an attorney to learn more about this structure. If your business is a for-profit entity that serves a social good, you may wish to speak with an attorney about registering as a benefit corporation. There are some benefits (but no tax savings) to registering with this structure.
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S corporationAn S Corporation (S corp) is a legal structure that shares many similarities with the C corp, but there are two key differences. First, a business organized as an S corp can issue only one class of stock to a limited number of U.S. resident shareholders (presently 100) rather than multiple classes of stock to an unlimited number of shareholders. Second, the S corp itself doesn’t pay tax. Instead, the owners report the business’s revenue as personal revenue.
How it’s formed:
What's great about this option:
The drawbacks:
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Close corporation and benefit corporation structure are also available to entities electing S corp status. Speak with an attorney to learn more about these structures.
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NonprofitNonprofit corporations are organized to do work that benefits the public. Generally, their work involves charity, education, religion, literature, or science.
How it’s formed:
What's great about this option:
The drawbacks:
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CooperativeA cooperative is an organization that’s owned and operated by the people who use its services. It isn’t a suitable arrangement for most businesses, but it offers advantages to certain groups.
How it’s formed:
What's great about this option:
The drawbacks:
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Why would I choose a business structure with multiple owners?
When you include other owners in your business, you could access three forms of capital you need to succeed:
![]() | Intellectual capitalGreat partners often have knowledge, experiences, and skills that their counterparts don’t possess. As a team, they have a solid understanding of what needs to happen in every part of their business, and they excel at acting on their plans. |
![]() | Financial capitalGreat partners have access to cash or ways to acquire funding. They have a good credit score (at least 650), which is key for taking out term loans, asset-backed loans, or SBA loans to cover startup costs, purchase inventory, or fund the business’s operations. |
![]() | Human capitalGreat partners are willing to put in the work that’s needed to make the business a success. Depending on the setup, partners may take a hands-on or hands-off approach. In either case, they’re willing to pitch in when and precisely how they’re needed. |
There are clear benefits to having access to more skills, knowledge, and support to start and run your business. Plus, if the partner you choose has cash on hand to invest in the business, you can avoid taking on costly loans or leveraging your assets, two options that introduce expense and risk.
But there are some downsides to multi-owner structures, too. Depending on your setup, you might not have the autonomy you want to make decisions and execute your ideas—at least, not without talking with your partner first. And while you and your partner may agree to share in the costs, you’ll also share the profits, which could be minimal in the first few years of operations.
If you decide to choose a multi-owner business structure, commit to finding a partner with the traits you and your business need to thrive.
What should I look for in a partner?
The partner you choose should have skills, experiences, connections, or resources that will benefit your business. You should be confident in that person’s abilities to team well and execute plans to achieve important goals.
Your partners could be friends or family members. They could also be professional contacts or people you don't know well but have valuable skills, resources, and experiences. There isn't a single right answer on who you should choose. Take stock of who you're comfortable working with and be sure that anyone you bring in will be an asset to the business.
When do I need to choose a business structure?
You’ll need to decide on the structure before registering your business with your state. You can learn more about this here:

How do I formalize the arrangement I choose?
Your attorney can help you formalize any business structure you choose. They'll also walk you through the state-specific steps you’ll need to take to register it.
Need help finding an attorney? Consider working with Contract Counsel. Check out their website here.
What’s next?
Lots of steps go into starting a business. We have articles and advice that can help you with every action you need to take. Log into your owner’s portal for a free, step-by-step guide to make your venture a success.