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Choosing the right legal entity for your business

On Behalf of | Jun 3, 2020 | Business Formation

When forming a business, you face a wide variety of decisions. What market will you sell to, and are your products a right fit for them? What strategy will allow you to turn a profit? Is the timing right, or should you wait for a more opportune moment? Alongside these important questions, you should consider one more: which legal structure will help your business succeed?

Sole proprietorship

A sole proprietorship has a streamlined structure because you are solely responsible for your business. It is also fairly simple to set up, making it a popular option for entrepreneurs. While this type of business has fewer regulations or tax obligations to consider, but you will also be personally responsible for the business’s finances, including its debts.


Similar to a sole proprietorship, a partnership involves cooperation between two or more people who share the responsibilities of a business. Like a sole proprietorship, the financial responsibilities of the business belong to the partners.


Unlike sole proprietorships or partnerships, corporations are considered legally distinct from their stakeholders. This means that the business is legally responsible for its finances and its actions, limiting the liability that the owner or owners have if the company faces difficulties. Corporations, however, are governed by more complex regulations and require additional financial care.

Limited liability company (LLC)

An LLC combines some aspects of a corporation and a partnership, allowing its owners to shield themselves from liability but also avoid taxation of the business itself. As the Small Business Administration notes, this protects your home, car and personal finances if your business faces challenges.

Wondering what type of business entity is the right fit for your company? Consider speaking to an attorney with experience in business law. They can help you choose the option that best fits your company and will give you a strong foundation for success.