Small Business Structures

Here is everything you need to know about the different business structures you can choose when forming your small business.

Sole Proprietorship

A sole proprietorship is the simplest and most common structure for small businesses.

• Ownership: One person owns and runs the business.

• Liability: There’s no legal distinction between the owner and the business, meaning the owner is personally responsible for debts and liabilities.

• Taxes: Business profits are reported on the owner’s personal tax return.

Best For: Freelancers, consultants, or anyone starting a business with minimal risk or complexity.

Partnership

A partnership involves two or more people who share ownership and responsibility for the business.

• Ownership: Shared between partners.

• Liability: In a general partnership, all partners are personally liable for business debts. In a limited partnership (LP), there are general partners (who manage the business) and limited partners (who are investors with limited liability).

• Taxes: Profits pass through to the partners’ personal tax returns, avoiding corporate taxes.

Best For: Small businesses run by two or more people who want to share responsibility and profits.

Limited Liability Company (LLC)

A Limited Liability Company (LLC) combines the simplicity of a sole proprietorship with the legal protections of a corporation.

• Ownership: Owned by members (individuals or entities).

• Liability: Members are not personally responsible for the company’s debts or liabilities.

• Taxes: Offers pass-through taxation (profits are reported on personal tax returns) or the option to be taxed as a corporation.

Best For: Small business owners who want liability protection without the complexity of a corporation.

Limited Liability Partnership (LLP)

An LLP is similar to a partnership but offers liability protection for all partners.

• Ownership: Shared between partners.

• Liability: Partners have protection from personal liability for the business’s debts or actions taken by other partners.

• Taxes: Profits are passed through to the partners' personal tax returns.

Best For: Professionals like lawyers, accountants, or doctors who want to collaborate but limit personal liability.

Corporation

A corporation is a separate legal entity from its owners, designed for businesses with growth and scalability in mind.

• Ownership: Owned by shareholders who can buy and sell stock.

• Liability: Owners are protected from personal liability.

• Taxes: Corporations face double taxation (profits are taxed, and dividends are taxed on shareholders’ returns), unless they elect S-corp status.

Best For: Businesses seeking investors, issuing stock, or operating on a larger scale.

S-Corporation (S-Corp)

An S-Corp is a special tax status that a corporation or LLC can elect, allowing profits to pass through directly to shareholders to avoid double taxation.

• Ownership: Similar to a corporation, but with restrictions on the number and type of shareholders.

• Liability: Shareholders have limited liability protection.

• Taxes: Offers pass-through taxation like an LLC, but with the corporate structure benefits.

Best For: Businesses that want the liability protection of a corporation but the tax benefits of an LLC.

B-Corporation (Benefit Corporation)

A B-Corp is a for-profit corporation that is legally obligated to pursue social and environmental goals in addition to financial profits.

• Ownership: Shareholders, like a regular corporation.

• Liability: Shareholders are protected from personal liability.

• Taxes: Similar to a regular corporation, subject to corporate taxes, but they must meet higher standards of accountability.

Best For: Businesses with a strong social or environmental mission.

Cooperative (Co-op)

A cooperative is owned and operated by the members who use its services, often for mutual benefit.

• Ownership: Shared equally by members.

• Liability: Limited to the amount each member invests.

• Taxes: Co-ops typically avoid corporate taxes by passing profits to members, who are then taxed individually.

Best For: Businesses in industries where users benefit directly from shared ownership (e.g., food co-ops, worker co-ops).

Each structure has different legal, financial, and operational implications, so it’s important to choose one that aligns with your business goals. Consulting a business attorney or accountant can help you make the best choice based on your specific situation.

Which Structure Is Right for Your Small Business?

Your choice depends on your business goals, liability concerns, and tax preferences. Sole proprietorships are simple, LLCs offer flexibility and protection, and corporations are ideal for scaling.

Need help deciding? Consult a CCG Consultant to ensure you pick the best structure for your business journey or learn more on your own with CCG Learning Academy.

CCG Learning Academy is the premier small business learning platform that teaches the skills small business owners need to compete. Every learning module is developed by a consultant with 10+ years working at major banks like JP Morgan Chase, Bank of America, Citi, or Discover. When you're ready to get the cutting-edge answers that can separate your business from the rest, sign up for CCG Learning Academy. The first 30 days is free!