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What type of business structure is right for you?

On Behalf of | Nov 23, 2023 | Business Law

Entrepreneurs bring innovation to the marketplace and are essential to the economy. However, starting a business is more than just having a great idea.

There are several factors to consider, and one of the first is deciding how you will structure your business. There are several options for structuring your business; however, these are the most common:

1. Sole proprietorship

This is the simplest form of business structure. There is no separation between the business and the individual. It is a good option for starting out or if the company has little risk, as the owner is responsible for its debts and liabilities.

2. Partnership

A partnership is two or more people sharing the profit and losses of the business, along with liability.

3. Corporation

Corporations are more complex. While they offer more legal protection, they also have more regulations. It is considered a legal entity owned by shareholders. Therefore, the corporation is liable for its actions, not the shareholders.

Corporations can also be broken down into subcategories:

  • C corporation is the most common. It is considered a legal entity separate from its owners.
  • S corporations are designed to avoid the double taxation that occurs with C corporations. They allow the profits and some losses to go directly to the owners’ income and not get taxed at the corporate rate.

Tennessee also allows the formation of B corporations, which are a type of for-profit corporate entity formed for public benefit.

4. Limited Liability Company (LLC)

LLCs provide the benefits of partnerships and corporations. They protect the owners’ assets from liability; profits can go directly to personal income without corporate taxes.

The type of business structure you choose has legal and tax implications. You may want to discuss the options with someone who can help you better understand the advantages and disadvantages of each structure.