How Should You Structure Your Business?

When starting up a business, one of the first decisions you need to make is in regards to the structure of your business. Depending on your situation, you can elect to structure your company in several different ways, including as a corporation, partnership, or limited liability company (LLC).

When structuring your business, you have a basic choice of six options. The differences between these options are mainly due to the degree of individual liability and how each is subject to taxes. The six basic business structures are:

• Sole Proprietorship -- You own the company and are responsible for both its assets and liabilities.
• General Partnership -- You contract with one or more people to run the business with equal responsibilities and liabilities.
• Limited Partnership -- Some of the partners in the partnership have less interest and liability in the company. In this type of partnership, there must be at least one general partner.
• Limited Liability Company -- You structure the company so that you and the people with whom you are starting the company have less or limited liability.
• C Corporation -- A traditional corporation that, when set up, leaves you with little or no personal liability.
• S Corporation -- The liability aspect is the same as a C corporation. The difference is the way it is taxed. C corporations are taxed twice, once on the corporate level and again on the personal level. S corporations are only taxed on the personal level.