Types of Business Entities for New or Small Businesses

There are three basic types of business entities to choose from:

• Sole Proprietorship
• Partnership
• Limited Liability Company (LLC)
• Corporation (C-corp)

There are various advantages and disadvantages to each, and the choosing the correct entity to form depends on a variety factors. Also, there is another category called a “professional corporation” or “professional association” that are used only by certain professionals such as doctors, lawyers, accountants and others. There are also limited liability partnerships and other variations on these entities.

Also, the IRS can tax business entities in different ways. Often we are asked by a client to “form a sub-S corporation.” However, one doesn’t “form” a sub-S corp. That is a designation made by the IRS. Generally, either LLCs or C-corps can be designated as a sub-S corp.

There are also not-for-profit or non-profit corporations that are governed by different rules.

In order to decide which entity is best for your particular business, consult with your attorney.