Your business structure isn’t just a legal checkbox—it's the foundation of your company’s future. The way you structure your business affects everything from taxes and legal risks to how you run your day-to-day operations and plan for long-term growth.
So ask yourself: How do you envision your business in the next few years? Are you someone who plays it safe, or are you comfortable with taking risks? Do you dream of eventually selling your business or even going public?
Your business structure will also determine your financial liability for any debts. And if you’re looking for investment or funding, the type of business you choose plays a big role in your options.
With so much at stake, choosing the right business structure is a critical step. Let’s break it down with a clear look at the 10 types of business structures available to you (if you live in the United States). After you've finished reading you'll have a better idea of which is the best business structure for you.
10 Business Structures for you to consider
Sole Proprietorship
The simplest and most common business structure for solo entrepreneurs. A sole proprietorship is easy to set up—no special filing required—and you get complete control over your business. The big upside? You only get taxed once on your personal income. But here’s the catch: you’re fully liable for any financial or legal issues. That means if things go south, everything you own is on the line.
💡 Running your business solo? Let's chat about how a Wix website can help you manage everything from inventory and orders to taxes and marketing—all without needing any tech skills!
2. General Partnership
A general partnership (or GP) is your go-to setup when two or more people are ready to dive into business together. It's straightforward and keeps things simple—just like a sole proprietorship, but with partners.
Here’s the good part: General partnerships benefit from pass-through taxation, which means your business is only taxed once—at the personal income level of each partner.
Plus, everyone in a general partnership gets an equal say in how the business is run. It's all about collaboration and shared decision-making.
But, let's talk about the flip side. Like sole proprietorships, general partnerships come with some serious risks. There’s no legal separation between you and your business. That means each partner is fully responsible for any debts or legal troubles that come up. And here’s the kicker: you're on the hook not just for your own actions, but for the actions of your business partners, too. Yikes, right?
So, a little tip from me to you—make sure you’re partnering up with people you trust and who share your vision because a general partnership means you’re in it together, for better or for worse. Choose wisely!
Limited Partnership (LP)
In an LP, you still have two or more owners, but here’s the difference: limited partners have liability protection based on the amount of money they’ve invested. At least one general partner has unlimited liability, so choose wisely if you go this route!
Limited Liability Partnership (LLP)
An LLP offers better protection for partners than a general partnership. In an LLP, partners are only responsible for their own actions and not for the mistakes of others. But, this business structure is usually only available to certain professions, like law or accounting.
C Corporation
A C corporation (or C corp) is like the powerhouse of business structures—ideal if you're dreaming big and thinking long-term. It’s a separate legal entity from its owners, giving you top-notch protection for your personal assets. If you want to build a company with serious growth potential (think large-scale operations or going public one day), a C corp might be your best bet.
One of the biggest perks? Fundraising is a breeze with a C corp.
You can issue stock—both common and preferred—and raise capital by bringing in shareholders. Plus, there’s no cap on how many shares you can issue. So if you're eyeing investment to fuel your business's next big move, this structure makes it easier.
But let's be real—C corporations aren’t for the faint of heart. They’re a bit more complex.
You’ll need to go through a detailed filing and registration process, draft up some solid bylaws, and get a board of directors in place to keep things running smoothly. It's a bit more red tape than other structures, but if you're thinking big, it’s worth it.
Now, here’s the one downside that trips people up: double taxation.
Yep, C corps get taxed twice—once on corporate profits and again on the personal income of owners and shareholders. So, while it's the go-to structure for big businesses, just know that tax-wise, you’ll need to plan ahead.
If you're aiming for big-time success and serious scalability, the C corp could be your ticket to the top. Just be ready for the extra layers of complexity!
S Corporation
An S corporation, or S corp, is like the savvy loophole in the corporate world—helping you avoid that dreaded double taxation. Unlike C corps, S corps are pass-through entities, meaning the profits and losses of the business "pass through" to the owners' personal tax returns.
Translation? You only pay taxes once at the personal income level. Pretty sweet, right?
This setup is why so many entrepreneurs get stuck choosing between an S corp or LLC.
💡Here's a pro tip: Talk to your accountant about setting up your LLC to be taxed as an S corp. Trust me, you'll be thanking yourself (and me!) later.
But like most good things, there's a catch. Maintaining S corp status comes with some strict rules—like being limited to 100 shareholders, and only individuals who are U.S. citizens or permanent residents can hold those shares. So, if you're thinking about big, international fundraising, this might not be your forever business structure.
In short, an S corp is ideal if you want tax savings without the heavy-duty legal structure of a C corp, but be sure you’re ready for the added complexity and restrictions.
7. Benefit Corporation (B Corp)
A Benefit Corporation, or B Corp, is the business world’s way of saying, “Hey, we’re here to make money and make the world a better place.”
It's a for-profit corporation, but with a twist—it balances profit with purpose, focusing on social and environmental impact. Think of it as a C corp with a heart.
While B corps are taxed just like C corps, they take on an extra responsibility: showing up for their communities and the planet.
And they don’t just talk about their good deeds—they’re required to publish an annual report detailing how they’re walking the walk when it comes to social and environmental performance.
So if you want to make money and make a difference, a B corp could be the perfect fit for your business. It’s all about doing well by doing good!
Limited Liability Company (LLC)
The Limited Liability Company (LLC) is like the best of both worlds—a mashup of a partnership’s flexibility with the protective perks of a corporation.
The magic of an LLC is that it keeps your personal assets safe from business debts and liabilities. So, if your business hits a rough patch, your personal bank account won’t take the hit. Sounds pretty good, right?
But there’s more! LLCs offer tax flexibility that other structures can’t compete with. You can choose how your LLC is taxed—either as a corporation or as a pass-through entity like a sole proprietorship or S corp. That means you can go with what’s best for your bottom line.
Now, let’s keep it real. Setting up an LLC is more involved than a sole proprietorship or partnership. There’s paperwork—articles of incorporation, appointing a registered agent, and a few other steps that sound fancy but are totally manageable with a little guidance.
Bottom line? An LLC gives you flexibility and protection, and it’s worth the extra effort to get it set up right.
9. Nonprofit
A nonprofit is a business with a heart. It’s all about furthering a social cause or serving the public good. And here’s the kicker—it’s granted tax-exempt status by the IRS, which means more of your money goes toward making an impact, not paying Uncle Sam.
If your organization qualifies as a 501(c)(3), it won’t have to pay federal income taxes.
That’s a huge win if your mission is to change the world one step at a time. But, here’s the deal: nonprofits are a bit different from for-profits. Any money you bring in must be reinvested into the organization, so you can’t pocket profits. It’s all about putting those funds to work for the greater good.
10. Joint Venture
A joint venture is kind of like a business partnership on a mission. It’s when two or more businesses join forces to tackle a specific project or goal together, often for a limited time. Think of it like teaming up to win a big contract or pulling resources to make a real estate purchase happen.
What’s great about a joint venture is that you get to share the strengths and resources of your business partner(s) without giving up your independence. It’s a temporary collaboration that can be super powerful. The catch? You’re also on the hook for the costs and potential losses, so it’s not a decision to take lightly.
Choosing the Best Business Structure doesn't have to be hard. Heres' how to determine the right one for you.
Get real about your risk comfort zone
Get smart about tax implications
Know how much control you want
Think about how you will fund your business
Think about future growth and scalability
Set personal and business goals
Get Real About Your Risk Comfort Zone
When it comes to figuring out your risk tolerance, it’s all about getting clear on how comfortable you are with potential financial and legal risks. Ask yourself:
How much does keeping your personal assets separate from your business matter to you?
What’s the likelihood your business could face legal issues?
Are you okay with taking on debt for your business, or does that give you anxiety?
Let’s say you’re starting an online shop selling custom t-shirts. It might seem low-risk at first, but think about this—what if a design accidentally infringes on someone’s copyright? Or worse, what if a customer has an allergic reaction to the fabric dye?
Now, if your goal is to become the next big player in online fashion, you might be ready to take on a bit more risk to scale quickly. But if you’re keeping things small with a cozy side hustle, you might lean toward a more conservative, low-risk approach.
💡 Pro Tip: There’s no “right” answer when it comes to risk tolerance. It’s all about what feels right for you. If you’re not sure where you stand, a quick chat with a business advisor or lawyer can give you the clarity you need.
Get Smart About Tax Implications
Taxes are a biggie when it comes to choosing the right business structure. Depending on how you set things up, the IRS, along with state and local tax authorities, will treat your business differently. Let’s break it down:
Pass-through tax status: Here, taxes are “passed through” from the company to its shareholders, meaning you’ll pay personal income tax on any dividends you earn.
Corporation tax status: Corporations get taxed twice—once on corporate income, then again when shareholders pay personal income tax on dividends. Yep, double the fun.
Nonprofit tax status: If you’re a nonprofit and meet eligibility requirements, you’re exempt from certain taxes at the federal and state levels.
And if the thought of managing taxes makes you sweat, don't worry—I get it. That’s why I love using Wix for my online business. With their integration with Avalara, taxes are basically on autopilot.
You can manage all your sales tax obligations right from your Wix dashboard. Wix calculates the exact amount at checkout—down to the product and location—so you’re always on point. And the best part? Wix automatically updates tax rates and regulations whenever they change. No more guesswork, just peace of mind.
Know How Much Control You Want
When it comes to choosing your business structure, one big question to ask yourself is: How much control do you want over the day-to-day and big-picture decisions? Each structure gives you different levels of authority—and responsibility.
Sole proprietorship: If you're someone who likes to call all the shots, this one’s for you. You have full control over every decision, but remember, you're also on the hook for all the risks.
Partnerships: You’re sharing the reigns here. Make sure you completely trust your partners and agree on who’s handling what. Communication is key.
Corporations: This is where things get a bit more structured. You’ve got a board of directors, officers, and shareholders. While you might have less direct control, this setup is ideal for bigger, more complex businesses.
LLCs: Flexibility is the name of the game. You can run the show yourself or set it up like a corporation with managers overseeing the daily grind.
Think about what feels right for you. Are you comfortable sharing control or do you need to be the boss? How involved do you want to be in the day-to-day operations? And if you’re dreaming of scaling big, choosing a structure that allows for smoother expansion is a smart move. It’s all about aligning your business model with your vision for growth.
Think About How You’ll Fund Your Business
Here’s the deal: how you fund your business can totally shape the business structure you choose. And trust me, this is one of those “don’t skip it” decisions.
Let’s say you’re launching the next must-have app. If you go the sole proprietorship route, you’re likely leaning on your own savings or hitting up family and friends for a loan. It’s a straightforward choice, but it might limit you when you want to scale.
On the other hand, forming a corporation could take things to a whole new level. Imagine pitching to venture capitalists or—who knows—going public one day. If that’s the dream, a corporation might be your best bet.
A partnership could also be an option if you want to team up with others and pool your resources.
Different business structures come with different funding opportunities, so take a moment to think through your plans. And hey, when in doubt, talking to a business adviser or lawyer can give you clarity and help you pick the path that aligns with your funding goals.
Think About Future Growth and Scalability
When it comes to picking your business structure, it’s not just about where you are today—it’s about where you want to be in five, even ten years down the road. Are you dreaming of massive expansion or keeping things cozy and manageable? Let’s break it down:
Sole proprietorship: Super easy to start, but as your business grows, it might feel like you’re carrying everything on your own shoulders. Funding and decision-making? That’s all you, baby.
Partnership: Teaming up with others can help share the load, but growth can get tricky as more cooks come into the kitchen. More partners = more opinions (and sometimes, more complications).
Limited liability company (LLC): This one’s got flexibility written all over it. You’ll protect your personal assets while keeping space for your small or medium-sized business to grow at its own pace.
Corporation: If you’re thinking BIG—like investors, going public, or expanding fast—a corporation is your best bet. But, fair warning, it comes with more paperwork, more rules, and a whole lot of structure.
So, ask yourself:
How big do I want to grow?
Will I need outside investors to scale?
Do I plan to sell the business someday?
The structure you choose should be a springboard, not a speed bump, for your future growth. While you can always change your structure down the line, getting it right from the start will save you some serious headaches later.
Set Personal and Business Goals
Alright, time to dream big (or small) and get clear on where you want this business to go. Ask yourself:
Are you aiming to grow into a major company? If your vision includes scaling beyond just yourself, it might be time to consider an LLC or C corporation to give you the room you need to expand.
Planning to keep it as a side hustle? If you're looking for something small and manageable, sticking with a sole proprietorship could be your best bet. It's simple and keeps things low-maintenance.
Want to eventually sell it? If selling your company is on your radar, starting as a sole proprietor might make things easier down the road. No complicated ownership transfers here—you just sell the assets, and boom, the new owner takes over.
Remember, you’re not married to your business structure forever.
As your goals evolve (and trust me, they will), you can always pivot and restructure. The key is to pick a structure that vibes with your current vision—whether that's becoming the next big beauty mogul or keeping things simple with a home-based side gig. The sky’s the limit!
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