Updated November 27, 2020:

Business Types: Everything You Need to Know

Also known as business entities, business types are categories that determine the structure of a business and how it will operate within the law. To get the most out of your small business, choose the right structure. Deciding on the appropriate kind of company for your new enterprise helps maximize your chances for success. The most common business types include the following:

  • C corporations
  • Limited liability companies (LLCs)
  • Partnerships
  • S corporations
  • Sole proprietorships

Business Structure Types

If you’re going into business alone and don’t want to hire workers, you can try for a sole proprietorship. Large businesses usually incorporate, which offers certain advantages when it comes to liability and the intricacy required by larger enterprises. Pros and cons are present for every business type, and since each enterprise has distinctive needs and objectives, you should look into all options before you choose.

Which Business Type in Which State?

Business types may be determined by the state. Some states license certain kinds of companies, and lots of states have completely different rules and limitations for which kind of business can be established and who can form each business type. Verify with your state's secretary of state (some states use completely different terminology) and the business division to see if the kind of business you need to form is offered in your state. All states permit corporations, partnerships, and LLCs; however, other varieties might not be available. For example, S firms are not determined by states; they're elected by corporations.

Sole Proprietorships

Sole proprietorships are the most common of all types of business structures. In contrast to LLCs and corporations, nothing needs to be filed and you don’t have to pay any fees. You're the sole proprietor of your business; you just have to start business operations. You'll pay taxes on business revenue as income in your private taxes, and you're personally responsible for any liabilities.


Partnerships are businesses owned by two or more individuals. Like a sole proprietorship, the partnership owners don't have to pay any charges or file papers to arrange a partnership; it merely begins whenever you form a business with several different individuals. Every associate reports his or her share of the business revenue as income on their individual taxes, and every associate is personally responsible for any money owed, claims, or responsibilities of the business.

Limited Partnerships

Limited partnerships, unlike general partnerships, cost more and can be more intricate to arrange. A small business with little potential for private legal responsibility is not a good candidate for a limited partnership. A limited partnership is usually organized by several individuals, known as "general partners," who are generally in charge of bringing on the "limited partners." The daily operations of the limited partnership are the responsibility of the general partners.

General partners are chargeable for any money owed, judgments, or liabilities of the limited partnership unless the general partner is an organization or an LLC. Also, like an associate in a standard partnership, the general partners in a limited partnership will share the business revenue and report this revenue on their private income taxes. Limited partners will not be personally responsible for any of the limited partnership’s liabilities. They are not included in most of the daily operations.

LLCs and Corporations

Though creating and sustaining an LLC or corporation will most likely be more complicated and expensive than forming a partnership or sole proprietorship, depending on the type of work you do, it may be better for your business. The first thing you'll want to do as an LLC or corporation is to protect yourself from any private legal responsibility that may come from your small business's dealings. Though LLCs and corporations are similar in several ways, a corporation is actually its own legal and tax entity, which isn’t true of many other business types.

If you need help defining your business type, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.