Setup4 min read
Sole proprietorship, LLC, or corporation?
An overview of common business structures and when each fits.
Your business structure affects liability, taxes, and paperwork. This is a general overview; rules vary by state and personal situation, so confirm with an accountant or attorney.
Common structures
- Sole proprietorship: the default if you start doing business alone. Easy and cheap, but you are personally responsible for business debts and lawsuits.
- LLC (limited liability company): separates business liability from personal assets when run properly. Flexible taxes and modest paperwork. A popular choice for small businesses.
- S corporation election: a tax status (often chosen by an LLC) that can reduce self-employment tax once profits are meaningful. Adds payroll and filing requirements.
- C corporation: best suited to companies raising venture capital. More formal and more paperwork.
- Partnership: two or more owners; write a partnership or operating agreement either way.
Questions to ask a professional
- Which structure fits my risk level and income?
- What will annual fees and filings cost in my state?
- When would an S corp election make sense?
Whatever you choose, keep business and personal money in separate accounts.
General information only, not legal, tax, or financial advice. Rules vary by state and change over time; confirm with official sources or a licensed professional.