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Business Structure & LLC

An overview of common business structures so you know what questions to ask a qualified professional.

Why structure matters

Your business structure affects how you're taxed, your personal paperwork, and in some cases whether your personal belongings could be at risk if the business is sued or can't pay a debt. This page explains the common options in plain terms so you know what questions to bring to a qualified professional — it isn't legal or tax advice for your specific situation.

Sole proprietorship

A sole proprietorship is the default if you start doing business as yourself and don't file anything to create a separate entity. It's simple and inexpensive to start, but there's no legal separation between you and the business — if the business owes money or is sued, your personal belongings can generally be reached too. Many people selling crafts, doing lawn care, or freelancing start here.

General partnership

A general partnership is similar to a sole proprietorship but with two or more owners sharing profits, debts, and decisions. Without a written agreement, state default rules decide how disputes and profits are handled, which can surprise people. Partnerships also come in other forms — such as limited partnerships and limited liability partnerships (LLPs) — which put different rules around each partner's responsibility and each have their own filing requirements. If you're going into business with someone else, a written partnership agreement and a conversation with a professional are worth the cost.

LLC (limited liability company)

An LLC is a structure you register with your state that can help separate business debts and lawsuits from your personal belongings, when it's run properly — separate bank accounts, separate records, and following your state's rules. It involves state filing fees and paperwork, and it does not protect you from everything (for example, it generally won't shield you from your own wrongdoing, and lenders can still ask you to personally guarantee a loan). One common mix-up: an LLC is a legal structure, not automatically its own kind of tax. Unless the owners choose otherwise, the IRS usually taxes a single-owner LLC like a sole proprietorship and a multi-owner LLC like a partnership. And it isn't required to legally sell things or offer services.

Corporation and nonprofit

A corporation is a more formal structure, often used when a business plans to raise outside investment or issue stock; it has more ongoing paperwork and, depending on type, different tax treatment. A nonprofit is organized around a mission rather than owner profit, and runs under its own set of state and federal rules — it is not simply 'a business that helps people,' and setting one up doesn't guarantee grants or donations.

What an 'S corp' actually is

You'll hear people say they 'formed an S corp,' but S corporation is really a federal tax election, not a separate legal structure you create with the state. An eligible corporation or an eligible LLC can ask the IRS to treat it as an S corporation for taxes, which generally means profits pass through to the owners' personal returns instead of the company paying corporate-level tax. A regular corporation that doesn't make that election is often called a C corporation, which is taxed as its own entity. An LLC keeps its state structure either way — choosing S corp treatment changes how it's taxed, not what it legally is. The trade-offs are real: eligibility depends on meeting IRS rules (for example, limits on owners and who they can be), owners who work in the business generally need reasonable payroll set up, and there are extra tax filings and deadlines. Check the IRS's official S corporation page before deciding anything, and talk with a qualified tax professional about whether the election fits your situation.

The main structures side by side

A quick, general comparison to help you follow a conversation with a qualified professional. Real rules, fees, and tax treatment vary by state and by situation, so treat this table as a starting point, not a decision.

  1. Sole proprietorship

    Who owns it
    One person — you
    You and the business legally separate?
    No — you and the business are legally the same
    Broad liability picture
    Your personal belongings can generally be reached for business debts
    Paperwork and taxes
    Least paperwork; profits and losses usually go on your personal tax return

  2. General partnership (and variations)

    Who owns it
    Two or more people together
    You and the business legally separate?
    No
    Broad liability picture
    Each partner can generally be reached for business debts — sometimes for a partner's actions too
    Paperwork and taxes
    Simple to start; a written agreement is strongly recommended; taxes usually pass through to the partners

  3. LLC

    Who owns it
    One or more owners, called members
    You and the business legally separate?
    Yes, when it's formed with the state and run properly
    Broad liability picture
    Business debts are generally kept separate from personal belongings — though it's not a shield for everything
    Paperwork and taxes
    State filing fees and ongoing paperwork; usually taxed like a sole proprietorship or partnership unless the owners choose otherwise

  4. Corporation

    Who owns it
    Shareholders — the owners can be many people
    You and the business legally separate?
    Yes — it's a separate legal company
    Broad liability picture
    The company, not the owners, is generally responsible for its debts
    Paperwork and taxes
    Most formal: incorporation documents, bylaws, directors, and more recordkeeping; taxed in its own ways depending on the type

  5. S corp (a tax election, not a legal structure)

    Who owns it
    Whoever owns the corporation or LLC that makes the election
    You and the business legally separate?
    Same as the corporation or LLC underneath it
    Broad liability picture
    Same as the corporation or LLC underneath it
    Paperwork and taxes
    An IRS election: eligible companies' profits generally pass through to owners' personal returns; requires meeting IRS rules, reasonable payroll for owners who work in the business, and extra filings

How to decide

There's no single right answer for every business. Many people start as a sole proprietor to test an idea, then form an LLC once there's real revenue and real risk to manage. Talk to a qualified attorney or accountant about your specific situation, your state's rules, and your industry's risks before you decide.

A real-world example

Someone testing a small vintage-doll resale side business might start as a sole proprietor with no filing required, keeping careful records and a separate bank account. Once sales grow and they're shipping regularly to strangers and handling customer payments, they might talk to an accountant about forming an LLC with the Ohio Secretary of State to separate business risk from their personal finances.

Steps to take

  1. List what you know about your own risk: do you handle other people's property, money, children, food, or vehicles?
  2. Compare the basics of sole proprietorship, partnership, LLC, and corporation using this page.
  3. Write down questions for a professional: cost to form, ongoing paperwork, and what it does and doesn't protect.
  4. Check your state's official filing office (in Ohio, the Secretary of State) for current forms and fees.
  5. Decide on a structure only after talking with a qualified professional if your situation is more than simple.

Structure check

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Go deeper in related modules

Not sure what a word means? Check Business Words Made Simple.

Official guidance

Use these official sources for current rules and details. They do not replace advice for your particular business.