Choose a Business Structure

Registering your company as a legal business structure — such as an LLC, corporation, or nonprofit — has two major advantages:

• Increased credibility
• Protection from personal liability in the event your business is sued

Find out which business structure is right for your new business.

Sole Proprietorship

A sole proprietorship is an informal business structure that isn’t incorporated or separated from its owner. This means that 100% of the business’s profits go to the owner; however, 100% of the financial liability should the business accrue debt or get sued falls on the owner as well.

Partnership

A partnership, like a sole proprietorship, is an informal unincorporated business structure but with multiple owners. Similarly, partnerships do not have liability protection that you find with a formal business structure.

LLCs

A limited liability company (LLC) combines the personal asset protection of a corporation with the flexibility of a partnership or sole proprietorship. Most small businesses prefer the LLC structure due to its easy maintenance and favorable tax treatment. Find out if you should start an LLC for your small business.

Corporations

A corporation is a separate legal entity that is owned by its shareholders. Corporations have more formal regulations than LLCs and tend to be more attractive to investors. Most large companies like Apple fall under the corporate category.

Nonprofits

A nonprofit organization is one that is funded by donations instead of investors. Nonprofits are typically created to further a social cause and are exempt from paying taxes. The Red Cross is an example of such an organization.

If you choose not to register your company as a business entity, you will be held personally responsible for the debts and liabilities of your business.

In addition, partnership and sole proprietorship business owners may need to file a DBA, sometimes known as a “fictitious name,” “trade name,” or “assumed name” depending on the state. A DBA IS NOT A BUSINESS STRUCTURE.

Find out if your business is required to file a DBA. Note that three states (Kansas, New Mexico, and South Carolina) do not have DBAs.