How do I decide on a business structure?
There are many options for setting up your business, from sole proprietorship to corporate structures.
It is important to decide early on how to structure your business. State and Federal tax requirements depend on what structure you choose. Here is a brief overview on the most common business structures.
For specific assistance or questions, we recommend that you speak to an attorney or tax accountant.
| Business structure |
Ownership |
Liability |
Taxes |
| Sole Proprietorship |
One person |
Unlimited personal liability |
Self-employment tax
Personal tax
|
| Partnerships |
Two or more people |
Unlimited personal liability unless structured as a limited partnership |
Self-employment tax (except for limited partners)
Personal tax
|
| Limited liability company (LLC) |
One or more person |
Owners are not personally liable |
Self-employment tax
Personal tax or corporate tax
|
| Corporation - C corp |
One or more people |
Owners are not personally liable |
Corporate tax |
| Corporation - S corp |
One or more people, but no more than 100, and all must be U.S. citizens |
Owners are not personally liable |
Personal tax |
| Corporation - benefit corporation |
One or more people |
Owners are not personally liable |
Corporate tax |
| Corporation - Nonprofit |
One or more people |
Owners are not personally liable |
Tax-exempt, but corporate profits can't be distributed |
Source: US Small Business Administration (SBA) (www.sba.gov)
Personal liability refers to the situation where a business faces legal actions or debt obligations, and as a result, creditors can pursue the personal assets and property of the business owners or members. This means that the individuals involved in the business may be held personally responsible for the debts and obligations incurred by the business.
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