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What is a Business Structure?

The business structure, or business entity, refers to the legal form of a business. It determines how a business is organized, how it operates, and how it is taxed. Examples of business structures include sole proprietorship, partnership, corporation (C corp and S corp), and limited liability company (LLC). The chosen structure impacts the owners' personal liability, tax obligations, and administrative requirements.

Types of Business Structures

There are several types of business structures available to entrepreneurs. Each has its own advantages and disadvantages and should be selected with careful consideration based on the particular needs and goals of a business.

Sole Proprietorship

A Sole Proprietorship is the simplest business structure where a single person owns and runs the entire business. They have complete control over all aspects of the company and are responsible for all profits and losses.


A Partnership is a legal structure that involves two or more individuals who has a share of the business. These partners can be individuals, corporations, or any combination of the two, and are all responsible for the business’ income and liabilities.

Limited Liability Company (LLC)

A Limited Liability Company (LLC) is a business structure that combines the limited liability of a corporation and the pass-through taxation of a partnership. LLCs are most popular among small business owners because of the legal protections they provide and the ability to pass-through taxes.


A Corporation is a legal entity that is owned and managed by shareholders. It is a separate legal entity from its owners, and is responsible for its own liabilities and debts. Corporations offer the largest level of protection from personal liability, but also have the highest compliance costs.


Nonprofits are organizations that do not seek to make a profit, but instead focus on providing a benefit to the community or to specific individuals. Nonprofits have a legal framework that allows them to receive tax-exempt donations and to also take advantage of special tax deductions.

Key Considerations When Choosing a Business Structure

When it comes to selecting a structure for your business, there are several things to consider:

  • Tax Liability: How will your business structure affect your taxes?
  • Liability: What are the legal implications of each structure?
  • Management: Who will have decision-making power?
  • Capital: How will profits and losses be distributed?

Changing Business Structure

Change is the only constant, right? If your business structure needs a makeover down the road, no worries! Here’s a snapshot of how to do it:

  1. Evaluate the Need: Why the change? Ensure it’s for the right reasons – like growth or reduced liability.
  2. Legal Formalities: Paperwork time! Register anew and bid adieu to the old structure.
  3. Notify the World: Let your clients, suppliers, and the tax folks know you’ve switched things up.

Frequently Asked Questions

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