When you’re starting a business, one of your first decisions is choosing the right business structure. The one you pick affects what you pay in taxes, what liability you take on, and what kind of paperwork you need to file.

Choosing between LLCs, sole proprietorships, partnerships, S Corps, and C Corps can feel overwhelming, especially if this is your first business venture. This guide explains the most common business structures, how they differ, and when each is a good choice for you.

A business structure is the legal framework that defines how your business is organized, who has the final say on how it’s run, and who earns the profits and is responsible for its debts. 

What are the types of business structures you should consider? According to the IRS, these are the most popular categories:

• Sole proprietorship

• Partnership

• Limited liability company (LLC)

• S Corp

• C Corp

Each of these has different legal, financial, and operational implications for your business. It’s important to consider each type carefully before you make a decision. 

There are endless ways to structure a business, but these five types account for nearly all of those opened each year. We’ve arranged them here from the most basic to the most complicated. 

Sole proprietorship is the most common type of business structure, making up more than seven in 10 U.S. businesses, according to data from the SBA Office of Advocacy. It’s also the simplest to implement and the easiest to manage, with no forms to fill out and nothing that requires incorporation. In fact, the only thing you need to do to establish a sole proprietorship is to take on your first client.

With no legal distinction between the business and the owner, a sole proprietorship is what is known as a pass-through entity. That means that any profit or loss is "passed through" to you, and you report them on your personal income tax return. That means you’re also assuming the financial risk for your business on a personal level. 

This type of business structure is generally appropriate for freelancers who operate on their own. If you’re the owner of an online store or are working as a consultant, this is definitely a business structure you should consider. A sole proprietorship is also ideal when you have a side project.

Pros: 

• As the sole owner of the business, you get to pocket all the profits.

• There’s no need to file separate income tax returns for your business.

• You’re fully in control and make all the decisions.

Cons:

• Along with the profits, you get all the debts and losses.

• You may be subject to self-employment tax.

• Your personal assets are not as protected from losses.

If you and one or more other people decide to go into business together, you’re forming a partnership. There are multiple partnership structures you can choose from, but the most common are a general partnership, where each of the partners contributes equally to running the business, and a limited partnership, where some partners have less involvement in day-to-day issues.

In terms of paperwork, a partnership is a bit more complicated than a sole proprietorship. Your business must submit a separate Return of Partnership Income form detailing its profits and losses with the IRS. But a partnership is still considered a pass-through entity, so each partner is responsible for reporting their share of the profits or losses on their personal income taxes. 

A partnership is ideal when a sole proprietor brings in others to help run an existing business. It’s also one of the best business types for startups and small businesses where partners pooling resources want to keep the initial operating costs in check. Well-established professionals, such as a group of graphic designers whose work complements each other, often form partnerships to be more attractive to clients with different needs.

Pros: 

• Except for some tax documents, very little paperwork is required.

• All of the partners share the business’s profits.

• Partners share the responsibilities and cost of running the business.

Cons:

• Because partners can leave at any time, the structure isn't as stable as incorporation.

• As with a sole proprietorship, you may be subject to self-employment tax.

• Partners are responsible for all the business debts and losses.

For many business owners, a limited liability company strikes the perfect balance. This type of hybrid business structure combines the simplified pass-through taxation of a sole proprietorship with the personal asset protection of incorporation. 

Whether there’s one owner (a single-member LLC) or two or more (a multi-member LLC), these types of businesses are fairly easy to create by filing documents known as “articles of organization” with your state. Owners of an LLC are free to decide the structure of the business and whether they run it themselves or appoint a manager.

If you’re running a startup or a small- or medium-sized business, an LLC is worth considering because of the financial protections it provides. It’s often the best choice for freelancers and consultants who want the credibility of a formal business structure without the added paperwork or administrative headaches of a corporation.

Pros: 

• Your personal assets are protected from business losses and bankruptcy.

• Board meetings and other formalities are usually not required.

• Requires much lower startup costs than corporations.

Cons:

• You may be subject to self-employment tax.

• Because they can't issue stock, LLCs are less attractive to investors.

• States often charge a fee to register and maintain an LLC.

When you incorporate your business, it exists as a completely separate entity. Launching a corporation helps to safeguard owners from business losses and legal action. With more formal structures, corporations can more easily raise venture capital, offer stock options to attract the best employees, and eventually go public.

There are a few different business types associated with corporations. An S corp is a type of corporation that's fairly simple to set up. Its owners, called shareholders, report the business's income on their own personal tax returns instead of the business paying taxes separately. This helps shareholders avoid double taxation, since the income only gets taxed once.

S Corps may be the right choice for businesses that have outgrown simple sole proprietorships and partnerships but do not plan on going public any time soon.

Pros: 

• Shareholders who work as employees of the corporation don’t pay self-employment taxes.

• The assets of individual shareholders are protected from business creditors.

• Business losses can be deducted from the personal income taxes of shareholders.

Cons: 

• There are strict rules for shareholders, capping the total number at 100.

• Only one class of stock is permitted, so you can’t have different levels of investors.

• Corporations and partnerships can’t invest in S Corps.

A more complicated business structure, a C Corp is the top choice for those who are preparing for growth in the months or years ahead. It has many advantages over an S Corp, including an unlimited number of shareholders, the ability to take on more types of investors, and the freedom to issue different classes of stock. 

A C Corp is required to have a board of directors in place to help guide business decisions. There are also mandated annual meetings, stricter regulatory requirements, separate income tax filings, and much more paperwork to file. Small- and medium-sized businesses generally shouldn’t consider a C Corp unless they can take on the administrative and financial aspects.

But if your business is hoping to attract deep-pocket investors or is anticipating an initial public offering, then a C Corp is the way to go.

Pros: 

• As is the case with S Corps, individual shareholders are protected from business creditors.

• There are few restrictions on investors, making raising capital much easier.

• C Corps can offer stock options to attract the best employees.

Cons: 

• There’s more paperwork and administrative upkeep that can be its own workload.

• Stock dividends might be taxed on both the corporate and individual level.

• Business losses can’t be deducted on shareholders’ tax returns.

No matter which of these business structures you choose, Squarespace has the tools you need to build a professional presence and grow with confidence.

As you zero in on which business structure is right for you, keep in mind the following key factors:

• Liability protection: If one of your goals is keeping your personal assets safe in the event of losses or lawsuits, consider an LLC. For more established businesses, an S Corp or C Corp also protects your personal property. 

• Tax implications: Sole proprietorships and partnerships make it possible to claim your business profits (and deduct business losses) on your personal taxes. A C Corp must file its own returns.

• Administrative complexity: Sole proprietorships and partnerships are the simplest to run, since they require little or no documentation. S Corps and C Corps are more complex, so you need to be prepared for a lot of paperwork.

• Growth plans and funding: There are strict regulations on the investors you can have for each type of business. Even when you incorporate, you may encounter limits on who can become a shareholder.

You can revisit how your business is structured as it grows. An LLC might be ideal when you launch, but if you decide you want to issue stock options to employees or look for funding from venture capital firms, you might want to become an S Corp or even a C Corp later on.

If an LLC is the right structure for your business today, Squarespace offers LLC Formation by ZenBusiness to make it easy. Secure your domain, build your website, and register your business right from your Squarespace account.

For a fee, ZenBusiness handles your articles of organization, EIN registration, registered agent service, and ongoing annual report filings. These are essential building blocks to get your LLC up and running, and keep it in good standing. It's everything you need to move from idea to official business in one place.

Whether you have a startup run by a sole proprietor or an established business that has dozens of employees, Squarespace can support your next steps: brainstorming your business name, writing a business plan, nailing down your niche, polishing your logo, securing your domain and website, boosting your SEO signals, building email campaigns, and more.

The IRS lists the most common business structures as sole proprietorships, partnerships, limited liability companies (LLCs), S Corps, and C Corps. Each has different rules for liability protection, taxes, and how much paperwork you'll need to file.

You don't need an LLC to run a small business, but it's worth considering if you want to protect your personal assets from business debts and lawsuits. A sole proprietorship or partnership may be enough if your business carries little financial risk.

LLCs and corporations (S Corps and C Corps) offer the strongest liability protection, since both separate your personal assets from your business's debts and lawsuits. According to the SBA, corporations offer the strongest liability protection, while LLCs also protect your personal assets in most instances. Sole proprietorships and general partnerships offer no such separation, leaving you personally liable for the business's debts.

A registered agent receives legal documents on behalf of your business and must be located in the state where you register. Per the SBA, you'll need one before you file if your business is an LLC, corporation, partnership, or nonprofit corporation.

Yes, many businesses start as an LLC and elect S Corp status once they're profitable enough to benefit, or convert to a C Corp when they're ready to raise venture capital or go public. Revisit your structure as your business grows instead of treating your first choice as permanent.

Once you've decided an LLC is the right fit, Squarespace's partner ZenBusiness can file your articles of organization, EIN registration, and registered agent service for a fee.