An Overview of Business Entities and How to Choose the Right One For Your Business

Registering your business means you have to pick a business structure, as it will influence your taxes, liability, and governance.

This article provides an overview of the different business legal structures and how to pick the most suitable one for your company. You’ll learn the importance of analyzing your risk tolerance and budget before deciding on your business structure.

What is a Business Legal Structure and Why Is It Essential?

A business legal structure is a type, classification, or variant of business that regulates specific facets of your company. This legal structure also influences your tax burden federal-wise. Meanwhile, state-wise, the legal structure has liability consequences. The system is necessary so you can make decisions for your liability, taxes, and hierarchy.

Business Legal Structures

Let’s take a look at the different business structures or business entities.

Sole Proprietorship

This type of business entity refers to a business owned by oneself. That means it’s not established as another entity. You have 100% control over it, including the finances, timing, products, and services. The only disadvantage is that you’re accountable for debts and legal actions.

Partnership

This is another simple business structure if there is over one business owner. This is excellent for professional groups, such as attorneys and doctors, and groups who want to test their idea before making everything formal. Its two main kinds are limited partnership and limited liability partnership.

Limited Liability Company

LLC is fantastic for those who want liability protection. This hybrid entity is the middle ground between a partnership and a corporation, offering more freedom than a corporation concerning taxes and governance.

C Corporation

A C corp is a business entity that separates it from its owners. This type of business can be taxed but can make a profit. This offers maximum protection to owners. However, a C Corporation is one of the most expensive types to establish.

S Corporation

An S Corporation or S Corp is a unique variant of corporation that prevents the business from having double taxation disadvantages of the ordinary C corps. They offer profits, and a few losses, but cannot be subjected to corporate tax rates.

B Corporation

A B Corp is short for benefit corporation, which is a for-profit corporation acknowledged and recognized by most of the states in the US for their benefit. What makes them unique is their purpose and responsibility.

Non-Profit Corporation

A non-profit corporation is the opposite of a B Corp regarding mission and purpose. This type of corporation is usually known as a charity organization. It benefits people through education, donations, research, and more. But they must also adhere to the laws like other corporations.

Check Your Risk Tolerance

Many companies prioritize protection from personal liability. That said, it’s essential to assess your risk tolerance. Avoid partnerships and sole proprietorships because they don’t offer complete liability protection.