Choosing Your Business Structure: A Simple Guide

Marie Jeanne Kaba, MBA

Oct 13

5 min read

Updated: 23 hours ago

By Marie Jeanne Kaba, MBA | TETEEMA GROUP LLC

Starting a business is exciting, but one of the first decisions you make — how to legally structure the business — has long-lasting consequences for your taxes, your personal liability, and how you operate. This guide explains the main business structures in the United States, the trade-offs of each, and a simple way to choose.

Why the structure matters

Your business structure determines three big things:

Personal liability — whether your personal savings, home, and car are protected from business debts and lawsuits.
Taxes — how the business's profit is taxed, and how much paperwork is involved.
Control and growth — who can own the business, how you raise money, and what happens when an owner joins or leaves.

The main types of business structure

Sole proprietorship

A sole proprietorship is one person doing business without forming a separate legal entity. It is the easiest structure to start and gives the owner complete control, and you can still operate under a trade name (SBA).

The trade-off: the business is not separate from the owner. Business assets and liabilities are the owner's personal assets and liabilities, so the owner can be held personally liable for business debts (SBA). The SBA suggests it can be a good choice for low-risk businesses and owners testing an idea before forming something more formal, but it can be hard to raise money because you cannot sell stock and banks are hesitant to lend to sole proprietorships (SBA).

Partnership

A partnership is the simplest structure for two or more people to own a business together. The SBA notes that partnerships have unlimited personal liability unless structured as a limited partnership (SBA). In a limited partnership (LP), there is one general partner with unlimited liability while all other partners have limited liability, and limited partners tend to have limited control as set out in the partnership agreement; the general partner must pay self-employment taxes. In a limited liability partnership (LLP), each partner has limited liability and is protected from debts against the partnership and from responsibility for other partners' actions (SBA). Partnerships are common for professional groups, such as attorneys, and for groups testing a business idea (SBA).

Limited liability company (LLC)

An LLC protects owners from personal liability in most instances, so personal assets like your vehicle, house, and savings accounts are not at risk if the LLC faces bankruptcy or lawsuits (SBA). Protection is not absolute — courts can sometimes hold owners personally responsible — but it is far stronger than operating without an entity.

For federal tax purposes, an LLC is a chameleon. By default, a single-member LLC is taxed as a sole proprietorship (a disregarded entity) and a multi-member LLC as a partnership, but an LLC can elect corporation status by filing Form 8832, or S corporation status by filing Form 2553 if it meets the requirements (IRS entities FAQ). Profits and losses of a default LLC pass through to the owners' personal income without the business paying corporate taxes (SBA).

Two things to know: the SBA notes that LLC members must pay self-employment tax contributions toward Medicare and Social Security, and in many states an LLC can have a limited life — when a member joins or leaves, some states may require dissolution and re-formation unless your operating agreement covers ownership transfers (SBA).

The SBA suggests the LLC can be a good choice for medium- or higher-risk businesses, owners with significant personal assets to protect, and owners who want to pay a lower tax rate than they would with a corporation (SBA).

Corporation (C corp)

A C corporation offers the strongest protection from personal liability and has an independent life separate from its shareholders — it can continue doing business relatively undisturbed if a shareholder leaves or sells shares. It can raise funds through stock sales, which also helps attract employees, making it a common choice for businesses planning to raise money, go public, or eventually be sold (SBA).

The downsides: it costs more to form, requires more extensive record-keeping, operational processes, and reporting, and pays income tax on its profits — which in some cases means profits are taxed twice, once at the company level and again when dividends are paid to shareholders (SBA).

S corporation tax election

An S corporation is designed to avoid the double-taxation drawback of a regular C corp: profits, and some losses, pass directly to owners' personal income without being subject to corporate tax rates (SBA). It is worth understanding that an S corp is a federal tax election rather than a separate kind of legal entity — a corporation or, in most cases, an LLC can elect S corporation tax treatment (IRS entities FAQ). Whether the election actually saves money depends on your specific numbers, so it is worth discussing with a tax professional before filing.

A simple way to decide

Answer these four questions in order:

Am I the only owner, and is the business low-risk? A sole proprietorship is the simplest start, though it leaves your personal assets exposed. You can always upgrade to an LLC later as the business grows.
Is protecting my personal assets a priority? If the business carries real risk — or you have significant personal assets — an LLC is often the practical middle ground: liability protection, pass-through taxation, and less paperwork than a corporation.
Do I need to raise money from investors or plan to go public? A C corp is built for that: it can sell stock and keep operating smoothly through ownership changes, at the cost of more paperwork and potential double taxation.
Will my business earn steady profits that make the extra structure worthwhile? Some profitable small businesses elect S corporation tax treatment to reduce self-employment taxes. Whether that helps depends on your specific numbers, so it is worth discussing with a tax professional.

If you are unsure, the honest starting point is: sole proprietorship for a simple, low-risk start; LLC when liability protection or credibility matters; corporation when you need investors or are building to sell.

New York specifics

New York has its own formation rules. New York LLCs file Articles of Organization with the New York Department of State, and Section 206 of the New York Limited Liability Company Law requires most LLCs to publish notice of their formation in two newspapers (generally one daily and one weekly) within 120 days of formation and then file a certificate of publication (NY DOS, NY LLC Law § 206). LLCs and corporations must also file a Biennial Statement with the Department of State every two years (NY DOS). Requirements vary by structure and county, so confirm the current rules with New York State or with a professional before filing.

The bottom line

Your business structure is not a one-time personality test — it is a practical choice based on risk, taxes, and your plans for growth. Many successful businesses start simple and change structure as they grow, and that is a perfectly normal path.

Sources

The official resources below provide further guidance, and we encourage you to consult them directly.

Have questions about your situation? Call us at 718-880-4485, message us on WhatsApp at 646-852-0774, or visit us at 451 Rockaway Avenue, Brooklyn. We serve clients in English, French and several West African languages.

This article is for general educational purposes only and does not constitute legal or tax advice. For help choosing and forming the right structure for your business, please contact our office.

About the author

Marie Jeanne Kaba, MBA, is the founder and CEO of TETEEMA GROUP LLC in Brooklyn, New York. She is an IRS Certifying Acceptance Agent, has been NYS licensed for more than 20 years, and holds an MBA in Finance from St. John's University. She serves clients in English and French.

TETEEMA GROUP LLC