Common Business Structures in the United States
Date: June 28, 2023
Updated: July 8, 2026
Introduction
Choosing the appropriate business structure is one of the most important decisions when starting or growing a business. Your choice can affect taxation, liability protection, management responsibilities, and future growth opportunities.
Entrepreneurs should become familiar with applicable federal, state, and local regulations before establishing a business. It is recommended to seek legal, tax and financial advice before selecting or forming a business or entity.
This guide provides an overview of the most common business structures in the United States and Highlights key tax and legal considerations before forming a business.
Factors to Consider When Choosing a Business Structure
Capital Investment
Regulations
Permits y Licenses
Complexity
Flexibility
Control
Tax Treatment
Responsibility
Common Business Structures
Sole Propiertor
Introduction
Doing Business
May do business as (DBA) under a trade name.
Application for a Trade Name - Allows the owner to take legal action in case someone else copies or misuses such trade name.
May register a brand and open a bank account.
Control
The owner controls the business and decision-making.
Advantages
Simplicity of creation and dissolution
No double taxation
Less costly to establish and maintain
Disadvantages
Personal Liability: Owner are personally liable for business debts and obligations
Capital investment is personal savings and loans
Tax Treatment
Taxed at the individual level on Form 1040
Self-employment tax
Estimated tax
Employment tax if the business has employees
Excise tax (if applicable)
LLC (Limited Liability Company)
Introduction
An LLC provides its owners, known as members, with limited liability protection for the company’s debts and obligations. It may be managed directly by its members or by appointed managers. An LLC also offers flexible management and several federal tax-classification options.
For additional information, see IRS Publication 3402, Taxation of Limited Liability Companies.
1. Choose a business name
2. Appoint a resident agent
3. File Articles of Organization or a Certificate of Organization with the Secretary of State.
4. Prepare an operating agreement. Check the requirements of your state.
5. Apply for an Employer Identification Number (EIN) through the IRS Website.
6. File annual or biennial reports, as required by the state.
*Requirements vary by state. Verify the specific formation and reporting requirements applicable in your jurisdiction.
Advantages
Profits and losses may pass-through to the members for tax purposes.
Generally requires less formalities than corporations.
Freedom to manage the company.
Disadvantages
Members may be subject to self-employment taxes unless the LLC elects to be taxed as an S Corp.
Some states may impose an annual franchise tax or LLC fees even though business is not profitable.
May not issue stocks.
Partnership
A partnership is a business owned by two or more persons who operate it together. Partners should generally establish a written partnership agreement addressing ownership, management responsibilities, profit and loss allocations, and procedures for admitting or withdrawing partners. Without an agreement, applicable state law may govern these matters.
Common Types of Partnerships
a. General Partnership - All partners may participate in management and are generally personally liable for the partnership's debts and obligations.
b. Limited Partnership (LP) - Includes at least one general partner who manages the business and has unlimited liability, and one or more limited partners whose liability is generally limited to their investment.
c. Limited Liability Partnership (LLP) - Provides partners with a degree of liability protection, subject to applicable state law.
Tax Treatment
Partnerships are generally treated as pass-through entities for federal income tax purposes. The partnership files Form 1065, U.S. Return of Partnership Income, and provides each partner with a Schedule K-1 (Form 1065) reporting their share of income, deductions, credits, and other tax items to be reported on their individual income tax return.
Depending on the type of partnership and the partner's participation in the business, partners may also be subject to self-employment tax on their distributive share of partnership income. For additional information, see IRS Publication 541, Partnerships.
Corporation
A corporation is a legal entity that is separate from its owners (shareholders). It is generally governed by a board of directors, while officers manage its daily operations. Corporations are generally required to observe certain formalities, including stock issuance, hold annual meetings, maintain corporate records and minutes of meetings, elect directors and adopt business resolutions. Depending on the type of corporation and tax election, a corporation may be taxed as a C corporation or an S corporation for federal income tax purposes.
Advantages:
Provides limited liability protection for shareholders
Offers business continuity independent of changes in ownership
May provide greater access to capital (financing) and investors
Ability to issue stock
Greater credibility with lenders and investors
Disadvantages:
Requires formality and recordkeeping
Higher formation and maintenance cost
Potential double taxation - Income is taxed at corporate level, then distributions to shareholders in the form of dividends or compensation are taxed at the individual level.
Types of Corporations and Tax Treatment
C Corporation
A C corporation is formed by filing Articles of Incorporation with the state. It may have an unlimited number of shareholders and issue multiple classes of stock. Shareholders’ liability is generally limited to their investment.
For federal income tax purposes, a C corporation is taxed separately from its shareholders. The corporation pays tax on its income, and shareholders may also pay tax on dividends received, which may result in double taxation.
S Corporation
An eligible corporation or entity may elect S corporation tax treatment by filing Form 2553 with the IRS. An S corporation is generally limited to 100 eligible shareholders, may not have nonresident alien shareholders, and may issue only one class of stock.
For federal income tax purposes, an S corporation is generally treated as a pass-through entity. Its income, deductions, credits, and other tax items pass through to shareholders, who report them on their individual income tax returns. Shareholder-employees who provide services must receive reasonable compensation, which is subject to payroll taxes.
Professional Corporation
Similar to a regular C corporation except that it is formed by professionals with a license issued by the state to offer specific services within their profession.
May elect to be taxed as a C-Corp or as an S-Corp if they meet criteria.
May be subject to double taxation if elect to be taxed as a C-Corp.
Non-Profit Corporation
Formation
Legal entity formed under state law to pursue a charitable, educational, religious, scientific, social, or other qualifying purpose. May qualify for tax-exempt status under IRS Code Section 501(c)(3) or other sections. Need to apply and be approved by the IRS.
Formality: Obtain EIN, create bylaws, register with state, board of directors, hold regular meetings and maintain records such as minutes of board meetings, etc.
Tax Treatment
A qualifying nonprofit corporation may receive federal income tax exemption under Section 501(c)(3) or another applicable section of the Internal Revenue Code. Most tax-exempt organizations must file an annual information return or notice with the IRS, generally using Form 990, Form 990-EZ, or Form 990-N, depending on their size and circumstances.
Tax-exempt organizations may still owe tax on unrelated business income and may be subject to payroll, employment, sales, property, or other taxes.
Donations may be tax-deductible for donors if the entity was granted the exempt status under IRS Code Section 501(c)(3).
Summary
Summary of business structures, ownership, liability, taxes and required forms:
Business Structure | Ownership | Liability | Taxes | Structure Forms | Owners Forms | Best For |
Sole Proprietorship | One person | Unlimited personal liability | At personal level, subject to Self-Employment tax | 1040, Schedule C, Schedule SE, 1040-ES, 941 or 943, 944, W-2s, W-3, 940, excise tax (as applicable) | | Individuals starting a business with a single owner who want a simple and low-cost business structure |
Limited Liability Company (LLC) | One or more persons | Owners are not personally liable | If treated as a disregarded entity, subject to personal tax and Self-Employment tax. If treated as a corporation, subject to corporate tax | 1040 (if single member) or 1065 and Schedule K-1 (1065) if two or more members | If a Single Member 1040, 1040-ES, Schedule C | Small and medium-sized business seeking limited liability protection, flexible management, and flexible tax treatment |
Partnership | Two or more person | Unlimited personal liability unless structured as a Limited Partnership | At personal level for partners -Subject to Self-Employment tax (except limited partners) | 1065, Schedule K-1 (Form 1065), Employment taxes (941,943, 940), excise taxes if applicable. | Partners: 1040, Schedule E Part II | Businesses with two or more owners who want to pass-through taxation and a flexible ownership arrangement |
C Corporation | One or more persons | Owners (Shareholders) not personally liable | Corporate tax and Shareholders are taxed on Dividends and Interests. (Double Taxation) | 1120, Employment Taxes (941 or 943, 940), Excise Tax, as applicable. | Shareholders:1040 | Growing businesses seeking outside investors, or considering issuing multiple classes of stock or become publicly traded |
S Corporation | One or more persons, up to 100. All must be U.S. citizens. | Owners (Shareholders) not personally liable | Personal tax level | 1120-S, K-1, K-2, K-3, Employment Taxes (941, 943, 940), Excise Taxes if applicable. | 1040, Schedule E part II | Profitable owner-operated business who want limited liability protection and pass-through taxation wile potentially reducing self-employment taxes |
Non Profit Corporation | One or more persons | Owners (Shareholders) not personally liable | Need to apply for Tax-Exempt status, but corporate profits cannot be distributed. | | 990-N (Gross receipts≤$50,000), 990-EZ or 990 (Gross receipts <$200,000 and Total Assets<$500,000), 990 (Gross receipts ≥$200,00 or Total assets≥$500,000), 990-PF for private foundations. | Organizations established to serve charitable, educational, religious, scientific, or other tax-exempt purposes rather than generating profits for owners |
Conclusion
Choosing the right business structure can have a significant legal, tax, and financial implications. Because every business is unique, it is important to evaluate your goals before selecting an entity. If you need assistance determining the most appropriate business structure for your situation, please contact us for a consultation.
Disclaimer
This article is provided for general informational and educational purposes only and does not constitute legal, tax, accounting, or financial advice. Business formation, liability protection, registration requirements, and tax treatment may vary depending on the jurisdiction, ownership structure, elections made, and specific circumstances of the business. Consult a qualified legal, tax, or financial professional before selecting or forming a business entity or making related decisions. If you need additional assistance, please contact us.
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