The legal structure or “type of company” you choose for your business is one of the most important decisions you will make in the startup process. Your choice of structure can greatly affect the way you run your business, impacting everything from liability and taxes, to control over the company. The key is to figure out which type of entity gives your business the most advantages when it comes to helping you to achieve your organizational and personal financial goals. The good news is that once you decide on the entity, there are services that can handle all the filings for a few hundred dollars.

“Your choice of structure can greatly affect the way you run your business, impacting everything from liability and taxes, to control over the company.” 

There are four major types of companies for you to choose from:

• Sole Proprietorship. This is the simplest form of business entity, and it is used by more than 70 percent of businesses in the United States, according to the Small Business Administration. With sole proprietorship, one person is responsible for all of a company’s profits and debts.
• Partnership. This entity is owned by two or more individuals. There are two types: general partnerships, where all is shared equally; and limited partnerships, where only one partner has control of its operation, while the other person or persons simply contribute to and receive only part of the profit. Partnerships carry a dual status as a sole proprietorship or limited liability partnership (LLP), depending on the entity’s funding and liability structure.
• Limited liability company (LLC). A limited liability company is a hybrid structure that allows owners, partners or shareholders to limit their personal liabilities while enjoying the tax and flexibility benefits of a partnership. Under an LLC, members are protected from personal liability for the debts of the business, as long as it cannot be proven that they have acted in an illegal, unethical or irresponsible manner in carrying out the activities of the business.
• Corporation. The law regards a corporation as an entity that is separate from its owners. It has its own legal rights, independent of its owners — it can sue, be sued, own and sell property, and sell the rights of ownership in the form of stocks. There are several different types of corporations, including C corporations, S corporations, and B corporations.