When you formed your business, you may have pictured what your business could become and chose a business structure that made sense for that vision. Now that your business is maturing, it’s time to reevaluate your choice and decide whether a change to your business structure would better suit your needs.
Why does my business structure matter?
Your business structure matters for two important reasons:
- It affects the taxes you pay.
- It determines whether—or how much of—your personal assets are at stake in the event of default.
But beyond taxes and liabilities, your structure spells out the rules you must follow. These can include how you’ll formalize decisions, how you can raise money, and whether you need to fulfill certain state filing requirements.
What worked for your business on Day 1 may not be the best choice today, so here’s what you can do now. Review the following structure options and see if there is a better fit for your business.
What are my choices?
There are eight popular business structures:
- Sole proprietorship
- General partnership
- Limited partnership
- Limited liability company (LLC)
- C corporation (C corp)
- S corporation (S corp)
- Nonprofit
- Cooperative (co-op)
What are the key differences?
Refer to this chart for a high-level overview of the key differences. Keep in mind that rules can vary by state. Speak with an attorney and a person from your state’s Secretary of State office or their Department of Taxation to learn more.
Type of structure | Who can own it | Personal liability | 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 |
Ready to learn more? Let’s explore each structure.
Sole proprietorship |
A sole proprietorship is a business that’s owned and operated by one person. The owner has full control of the business and full discretion over the decisions that are made.
How it’s formed: Unless you register as another form of business, your state will recognize your business as a sole proprietorship when you file your state’s formation paperwork.
What’s great about this setup:
The drawbacks:
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General partnership |
A general partnership is a co-ownership arrangement between two or more people who share legal and financial responsibility for the business.
How it’s formed: General partnerships are formed with a partnership agreement. This agreement should be drafted by an attorney and signed by every ownership partner.
What’s great about this setup:
The drawbacks:
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Limited partnership |
A limited partnership is an arrangement between two or more people or businesses. One or more is a general partner with full legal and financial responsibility for the business. The other(s)’ liability is limited to the amount they invest in the business.
How it’s formed: Like a general partnership, limited partnerships also require a partnership agreement. This agreement should be drafted by an attorney and signed by every ownership partner.
What’s great about this setup:
The drawbacks:
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Limited liability company |
A limited liability company (LLC) combines elements of a partnership and a corporation. Like 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: Owners file Articles of Organization with their state and pay a filing fee.
What’s great about this setup:
The drawbacks:
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C Corporation |
A 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. Owners also pay tax on the income they receive from the business.
How it’s formed: Owners file Articles of Incorporation with their state and pay a filing fee.
What’s great about this setup:
The drawbacks:
.If you plan to issue stock but won’t publicly trade shares, you might organize as a close corporation. In this setup, you and a select group of people can own and run the business without dealing with 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, speak with an attorney about registering as a benefit corporation. There are some benefits (but no tax savings) to choosing this structure.
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S corporation |
An S Corporation (S corp) is a legal structure that’s much like a 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: Owners file Articles of Incorporation with their state and pay a filing fee, and they file Form 2553 with the IRS.
What’s great about this setup:
The drawbacks:
.Close corporation and benefit corporation structure are also options for entities electing S corp status. Speak with an attorney to learn more about these structures. |
Nonprofit |
Nonprofit corporations are organized to do work that benefits the public. Generally, their work involves charity, education, religion, literature, or science.
How it’s formed: Owners must file articles of incorporation, apply for IRS and state tax exemptions, and follow state-specific procedures for registration.
What’s great about this setup:
The drawbacks:
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Cooperative |
A cooperative is owned and operated by the people who use its services. It isn’t suitable for most businesses. Still, it offers advantages to certain groups.
How it’s formed: Owners file Articles of Incorporation with their state, create bylaws, draft a membership application, and elect directors.
What’s great about this setup:
The drawbacks:
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How do I change my business structure?
An attorney can help you formalize the arrangement you choose. This pro will also walk you through the state-specific steps you’ll need to take to register or re-register your business.
This guide can help you work through those steps:

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But briefly, here are some of the tasks you might need to take on as you change your business structure:
- Complete your state’s registration process
- Draft and file new organizing documents
- Obtain a new federal employer identification number from the IRS
- Reapply for permits or licenses to operate (if needed)
If you move from a sole proprietorship or partnership to an LLC or corporation, you may need to open new bank accounts to separate your business and personal assets. You may also need to make changes to your insurance policies and vendor contracts to address the changes you make to your liability status.
Be sure to work with an attorney who can help you cover your bases as you change your business structure. Would you like to connect with an attorney? Click the button below to get started:
Want to know more about working with a small business attorney? This guide is a great resource:

What’s next?
Making sure your business is positioned for tax, legal, and risk concerns is important. Still, there are lots of other considerations to keep in mind to help your business perform at its best. Log into your owner’s portal for a free step-by-step guide to structure your business for success.