Which Legal Structure is Best for Your Business

Which Legal Structure is Best for Your Business

Starting a business is a lot more complicated than just selling a product or service and finding customers.  You  need to have the right legal structure for your business or you can face legal consequences.  Choosing the right legal structure for your business will depend on what type of business you have and which suits the situation.  Let’s look at your options so you can determine what will work for you and your business.

Sole Proprietor

This is the type of structure that most small business owners start out with, a sole proprietor could be any business from the neighborhood dog walker to your accountant that works from home.  A sole proprietor has one owner and they are completely responsible for the business, all decisions are theirs along with all of the financial responsibilities.  If you are a sole proprietor all of your business income gets declared on your personal tax return.


A partnership is the same as a sole proprietor, except there are two or more of you running the business.  All partners share in the running of the business and collecting the profits, however it doesn’t mean it is an equal partnership.

Incorporating Your Business (INC or LTD)

When you incorporate your business that makes it an entity all by itself and the finances of the business are separate from that of the owners.  Lots of business owners choose this option because it allows you to avoid personal liability.  However for new or very small business owners it can be too expensive to set up and it means higher expenses and more paperwork for the business owner.

LLC (Limited Liability Corporation)

An LLC is much like a corporation giving you all of the same benefits such as protection for liability but with a lot less paperwork and it is cheaper.  Depending on the state where you get your LLC you can do it for less than $100.  You also don’t need to file as much paperwork with the state each year.

LLP (Limited Liability Partnership)

This is very similar to an LLC, giving you the same protection but there needs to be at least two owners.  It is an easy business structure to maintain but not as common as an LLC.

The type of structure that you ultimately choose can make a big difference both legally and financially.  Take the time to speak with an attorney and explain your business model, they can help you decide which is the better option to protect you legally and financially.


Written by Guy Cooper