Understand the structureChoose a structure
Choose a structure
that fits your plans.
Compare ownership, personal liability, tax treatment, administration, and funding plans. These are starting points for a conversation with a qualified legal or tax adviser, not an automatic recommendation.
| Structure | What it is | When to consider it | What to weigh |
|---|---|---|---|
| Sole proprietorship | One owner operating without forming a separate entity. | A simple, low-risk solo activity or early idea testing. | The owner generally has personal responsibility for business obligations. |
| General partnership | Two or more owners carrying on a business together. | Co-owners who want a shared venture. | Personal liability, decision rules, and ownership arrangements deserve careful attention. |
| Limited partnership / LLP | Partnership structures with different management and liability rules. | Specific investment arrangements or eligible professional groups. | Availability and protections depend on state law and the structure chosen. |
| Limited liability company (LLC) | A state-created entity with one or more members. | Owners considering a separate entity and flexible management. | State filings, fees, ongoing duties, and an operating agreement must be planned. Tax treatment can vary. |
| Corporation (commonly C corporation) | A separate entity governed through shareholders, directors, and officers. | Businesses considering stock ownership or outside investment. | More formal governance and potentially separate corporate and shareholder taxation. |
| S corporation tax election | A federal tax election for an eligible corporation or entity. | An eligible business evaluating pass-through taxation with a tax adviser. | This is not a separate state entity type. Ownership, stock, payroll, and filing rules apply. |
| Nonprofit corporation | An entity formed under state nonprofit rules for its stated purposes. | A mission and governance model that fits nonprofit operation. | Formation does not automatically create federal tax exemption or permit charitable deductions. |
Five questions to discuss before filing
- Will there be one owner, co-owners, or outside investors?
- What liability risks and insurance needs does the work create?
- What state fees, reports, and governance duties can you maintain?
- How will profits, compensation, and taxes be handled?
- Does a regulated profession or planned fundraising limit your choices?
Find your state’s filing office →IRS business structures ↗IRS LLC guidance ↗IRS S corporation guidance ↗
Sources: U.S. Small Business Administration and Internal Revenue Service. State-specific options and requirements vary.