Choosing a Business Structure: LLC vs. Corporation vs. Partnership

The business structure you choose affects your personal liability, tax obligations, and ability to raise money — making it one of the first and most consequential decisions any new business owner makes.

Sole Proprietorships and General Partnerships

A sole proprietorship requires no formal filing to create but offers no liability protection, meaning the owner's personal assets are exposed to business debts and lawsuits.

A general partnership works similarly for two or more owners, with each partner typically personally liable for the business's obligations, including those created by the other partners.

Limited Liability Companies (LLCs)

An LLC combines liability protection similar to a corporation with more flexible management and simpler tax treatment, since LLC profits generally pass through to the owners' personal tax returns without a separate corporate-level tax.

LLCs have become the most popular choice for small businesses because they offer meaningful liability protection without the more rigid formalities corporations require.

Corporations: C-Corps and S-Corps

A C-corporation offers strong liability protection and is the standard structure for businesses seeking outside investment, but it faces "double taxation" — the corporation pays tax on profits, and shareholders pay tax again on dividends.

An S-corporation avoids double taxation through pass-through treatment similar to an LLC, but comes with stricter eligibility requirements, including limits on the number and type of shareholders.

Frequently Asked Questions

Can I change my business structure later?

Yes, though converting between structures involves its own legal and tax considerations, so it's worth choosing carefully at the outset.

Do I need a lawyer to form an LLC?

It's possible to file the basic paperwork yourself, but an attorney can help draft an operating agreement and address liability and tax considerations specific to your business.

The right business structure depends on your liability concerns, tax situation, and growth plans. An attorney can help you evaluate the trade-offs before you file.