{"id":4821,"date":"2016-04-04T10:47:45","date_gmt":"2016-04-04T15:47:45","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/incorporation-and-legal-structures\/do-s-and-don-ts-choosing-a-business-form.html"},"modified":"2024-05-22T22:39:52","modified_gmt":"2024-05-23T03:39:52","slug":"do-s-and-don-ts-choosing-a-business-form","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/incorporation-and-legal-structures\/do-s-and-don-ts-choosing-a-business-form.html","title":{"rendered":"Do’s and Don’ts: Choosing a Business Form"},"content":{"rendered":"\n
\n \n
\n

Do's and Don'ts: Choosing a Business Form<\/h1>\n
\n
\n By Jade Yeban, Esq.<\/a> | Legally reviewed by Aviana Cooper, Esq.<\/a>\n | Last updated\n
\n

Editorial Note: We earn a commission from affiliate partner links on FindLaw. Commissions do not affect the editorial integrity of our legal content.<\/p>\n\n <\/div>\n \n

\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
\n

This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
\n

The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n

Once you make the decision to start your own new business, there are several steps to take early in the process. These include creating a business plan, figuring out how you will finance the business, and selecting a business name. Another one of the initial steps of starting a business is choosing a business structure.<\/p>\r\n

This choice impacts how you file your income tax and protect your personal assets. It affects how you run your business overall. From a sole proprietorship to a C corporation, each form of business has its own benefits and drawbacks. Understanding the differences between a limited liability company<\/a> (LLC), a partnership, and a corporation is vital.<\/p>\r\n

There are several different business forms, also called business structures, legal entities, or legal structures, each with its own advantages and disadvantages<\/a>. This article provides information to help you choose a business form. Let’s explore the do’s and don’ts of choosing a business structure for your small business to help small business owners like you make informed decisions.<\/p>\r\n

Form your LLC with confidence.\u202fOur trusted partner LegalZoom has packages starting at $0 + filing fees.<\/a><\/i><\/b><\/p>\r\n

Legal Structures: Overview<\/h2>\r\n

Choosing a business structure is very important because it will determine your personal liability as a business owner and tax obligations. There are several types of business structures<\/a>, the most common being sole proprietorships, general partnerships, corporations<\/a>, and limited liability companies (LLCs).<\/p>\r\n

A sole proprietorship<\/a> is the most simple business form and enjoys pass-through taxation, but doesn’t protect the business owner from personal liability. A general partnership<\/a> is similar to a sole proprietorship, except that there are two or more owners. There are also structures called limited liability partnerships (LLPs).<\/p>\r\n

A corporation<\/a>, on the other hand, is probably the most complex business form but provides the owners with the most protection from liability. Aside from being complex, a corporation is also subject to double taxation. <\/p>\r\n

A limited liability company<\/a> (LLC) is a more recent development and has some of the best aspects of sole proprietorships and corporations; LLCs provide protection from liability and enjoy pass-through taxation. While LLCs do not require as many formalities as corporations<\/a>, there are still certain requirements for forming and maintaining LLC status.<\/p>\r\n

Each entity comes with unique tax benefits and responsibilities towards the Internal Revenue Service (IRS).<\/p>\r\n

The Do’s of Choosing a Business Structure<\/h2>\r\n