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When starting a new business, an important decision a new company must make is its structure. This is a monumental step for any new business and can affect various aspects of the company’s operations. We will discuss the different types of business structures commonly used by companies.

Business Structure

A legal organization is a type of entity a company can use to establish its operations. It can be used to develop various aspects of the business, such as its ownership structure and liability. Although it doesn’t significantly impact the day-to-day operations of the company, the structure must be designed to help minimize the risk of multiple issues.

Generally, people don’t need to put all their details in their own names to operate a business. However, if you plan on working full-time for the company, you must choose a structure registered with the state where you live.

The Different Types of Business Structures

-Sole Proprietorship

The most common type of business structure is a sole proprietorship. According to the IRS, a sole proprietor is someone who owns an unincorporated business. This type of business structure allows the owner to keep all of the profits from the company.

However, sole proprietors are also responsible for the company’s debts and other liabilities. This structure allows creditors and lawsuit claimants to access the company’s assets and personal accounts if the accounts cannot cover the debt. Some examples of businesses that are commonly associated with sole proprietorships include independent consultants and freelance writers.


A partnership is another type of business structure that refers to the relationship between two or more people to carry out a trade or business. There are three common types of partnerships: a general partnership, a limited partnership, and a limited liability partnership.

-Limited Liability Company

A limited liability company can get confused for people and the IRS. An LLC is a legal entity allowed by state law and is whatever business structure the state allows. However, it can also be considered a “disregarded entity” if its characteristics and elections make it look like a part of the owners tax return.

An LLC is considered a hybrid legal entity, which means that it has various characteristics similar to other business structures. An LLC doesn’t have personal liability for its members, unlike its business counterparts. This type of arrangement also gives its owners more protection and flexibility. An LLC can be used for various federal tax purposes because it’s a legal entity created by the state. For instance, a single-member LLC can be taxed as a corporation or sole proprietorship.

– Corporation

A corporation is either a group of people or a company that is authorized to act as a single entity. This type of arrangement ensures that it’s not subject to the personal liability of its members. It can also sue other individuals or companies and enter into contracts. Due to its unique characteristics, a corporation is sometimes referred to as a legal person.