Common U.S. structures
| Structure | Basic idea | Typical strengths | Questions to examine |
|---|---|---|---|
| Sole proprietorship | One individual operates without forming a separate state-law entity. | Simple start, fewer entity formalities. | Personal liability, name registration, taxes, insurance, contracts, and whether an entity is worthwhile. |
| General partnership | Two or more people carry on a business together without necessarily forming a separate limited-liability entity. | Flexible, can arise informally. | Personal liability, authority, profit sharing, exits, disputes, death or incapacity, and a written agreement. |
| Limited liability company (LLC) | A state-created entity with state-specific rules and flexible federal tax classification possibilities. | Liability separation when properly maintained, ownership flexibility, common small-business choice. | State fees, annual reports, registered agent, operating agreement, tax election, multi-state registration, and record separation. |
| Corporation | A separate legal entity with shares, directors, officers, and more formal governance. | Structured ownership, continuity, investment pathways. | Formalities, tax treatment, payroll, shareholder rules, securities issues, and administrative cost. |
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State law and federal tax are different dimensions
An LLC is formed under state law, but federal tax treatment depends on ownership and elections. A corporation may be taxed under different federal regimes if eligibility and election requirements are met. Do not choose a state-law entity solely from a slogan about taxes.
Compare more than liability
- Who owns the business now and later?
- How are decisions made and documented?
- What happens if an owner leaves, dies, becomes disabled, or disputes a decision?
- Will investors, lenders, employees, or contractors expect a particular structure?
- Which state fees, reports, agents, and records recur annually?
- Where does the business need to qualify outside its formation state?