Why it matters:

Whether you're launching a side business, opening a partnership, or planning for rapid growth, the structure you select can shape how your business is taxed, managed and protected. 

Here are some of the most common questions we hear from new business owners and the key factors to consider before making your choice.

What business structure should I choose when I'm just starting out?

Many new businesses begin as a sole proprietorship because it's the simplest option. There's minimal paperwork, startup costs are low, and you maintain complete control over business decisions.

However, simplicity comes with tradeoffs. Sole proprietors are personally responsible for business debts and legal obligations, and business income is generally subject to self-employment taxes. While it can be a practical starting point, it may not be the best long-term solution as your business grows.

When does a partnership make sense?

If you're starting a business with one or more partners, a partnership may be an option worth considering. Partnerships allow owners to share responsibilities, resources, and expertise while keeping startup requirements relatively straightforward.

The challenge is that shared ownership can also mean shared decision-making and, in some cases, shared liability. A well-written partnership agreement is critical to help establish expectations and minimize potential conflicts down the road.

Why do so many businesses choose an LLC?

Limited Liability Companies (LLCs) continue to be one of the most popular business structures, and for good reason. They offer liability protection for owners while maintaining flexibility in how the business is managed and taxed.

LLCs are often attractive because profits and losses typically pass through to the owners' personal tax returns, avoiding corporate-level taxation. Depending on the state and tax circumstances, LLCs may also provide opportunities for additional tax planning.

That said, LLCs generally require more administrative work and ongoing compliance than sole proprietorships.

What's the difference between an LLC and a corporation?

One of the most common questions we hear is whether an LLC or corporation is the better choice.

Corporations are separate legal entities that provide strong liability protection and can make it easier to raise capital from investors. They also offer continuity if ownership changes over time.

However, traditional C corporations are subject to what's often referred to as "double taxation," where profits are taxed at both the corporate level and again when distributed to shareholders as dividends.

An LLC typically offers more flexibility and simpler administration, making it a popular choice for many small and midsize businesses. However, members, like partners in a partnership, may be subject to self-employment taxes.

Should I elect S corporation status?

For some businesses, an S corporation election can provide tax advantages while maintaining liability protection. Unlike a C corporation, an S corporation generally avoids double taxation because income passes through directly to the owners' personal tax returns. Business owners may also have opportunities to structure compensation between salary and distributions, which can create tax planning opportunities when done properly.

However, S corporations come with additional rules, filing requirements, and IRS scrutiny, particularly around reasonable compensation for shareholder-employees.

How important are taxes when choosing a business structure?

Taxes are certainly important, but they shouldn't be the only factor driving your decision.

Your business structure can also affect:

• Personal liability protection
• Ownership flexibility
• Ability to raise capital
• Succession planning
• Administrative requirements
• Long-term growth opportunities

The most tax-efficient structure isn't always the best overall fit for your business goals.

What's the bottom line?

Choosing a business structure isn't simply about checking a box when you launch your business. It's a decision that can influence your tax obligations, legal protections, and operational flexibility for years to come. Since every business is unique, it's important to evaluate your options carefully and revisit your structure as your company evolves.