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Business types 101

Learn the pros and cons of the 5 different business types to find the one that's right for you.

Business type
How it's unique
Protections & taxation
Drawbacks to consider
Business type
How it's unique
Protections & taxation
Drawbacks to consider

LLC

Get started
From + state filing fees

Better for max flexibility in how you manage and run your business; board of directors not required

Unlimited owners (aka "members") allowed

You're not personally on the hook for business liabilities

Taxed once or twice; you're free to choose which can help minimize taxes

Ongoing filings and fees to stay in compliance

LLCs can't go public

Not recognized globally; you may be taxed as a corporation in other countries

S corporation

Get started
From + state filing fees

Better for smaller corporations

100 shareholders max

Owners can only get common stock

You're not personally on the hook for business liabilities

Taxed once—only shareholders pay on profits received

Ongoing filings and fees to stay in compliance

Less management flexibility; must have a board of directors

More admin; strict rules about holding meetings and keeping records

All shareholders must be U.S. citizens or residents

C corporation

Get started
From + state filing fees

Best if you plan to go public one day; can issue shares to founders, employees, and investors

Unlimited owners (aka "shareholders") allowed

Owners may get preferred stock

Recognized internationally

Preferred by investors

You're not personally on the hook for business liabilities

Taxed twice—business pays at the corporate level, and shareholders pay on income received

Ongoing filings and fees to stay in compliance

Less management flexibility; must have a board of directors

More admin; strict rules about holding meetings and keeping records

Nonprofit

Get started
From $99 + state filing fees

Best if you're supporting a good cause and want to protect your personal assets

No owners; you can start or oversee a nonprofit, but you can't technically own it

Looks more official to potential donors

Gives you access to public and private grants

You're not personally on the hook for business liabilities

Tax exempt—if you have 501(c)(3) status with the IRS

Ongoing filings and fees to stay in compliance

Less management flexibility; must have a board of directors

More admin; strict rules about holding meetings and keeping records

Pricier application and filing fees if you try for 501(c)(3) tax-exempt status

Sole propSole proprietorship

Better if you need an easy set-up

No paperwork to start; you may still need a DBA or business licenses to operate legally

One owner max

You're personally on the hook for business liabilities

Taxed once—you pay on profits in your personal tax return

Less hassle; separate tax return not needed

No personal liability protection

Business types

  1. How it's unique

    Board of directors not required

    Unlimited owners (aka "members") allowed

    Protections & taxation

    You're not personally on the hook for business liabilities

    Taxed once or twice; you're free to choose which can help minimize taxes

    Drawbacks to consider

    Ongoing filings and fees to stay in compliance

    LLCs can't go public

    Not recognized globally; you may be taxed as a corporation in other countries

    Get Started
    From + state filing fees

  2. How it's unique

    100 shareholders max

    Owners can only get common stock

    Protections & taxation

    You're not personally on the hook for business liabilities

    Taxed once—only shareholders pay on profits received

    Drawbacks to consider

    Ongoing filings and fees to stay in compliance

    Less management flexibility; must have a board of directors

    More admin; strict rules about holding meetings and keeping records

    All shareholders must be U.S. citizens or residents

    Get Started
    From + state filing fees

  3. How it's unique

    Can issue shares to founders, employees, and investors

    Unlimited owners (aka "shareholders") allowed

    Owners may get preferred stock

    Recognized internationally

    Preferred by investors

    Protections & taxation

    You're not personally on the hook for business liabilities

    Taxed twice—business pays at the corporate level, and shareholders pay on income received

    Drawbacks to consider

    Ongoing filings and fees to stay in compliance

    Less management flexibility; must have a board of directors

    More admin; strict rules about holding meetings and keeping records

    Get Started
    From + state filing fees

  4. How it's unique

    No owners; you can start or oversee a nonprofit, but you can't technically own it

    Looks more official to potential donors

    Gives you access to public and private grants

    Protections & taxation

    You're not personally on the hook for business liabilities

    Tax exempt—if you have 501(c)(3) status with the IRS

    Drawbacks to consider

    Ongoing filings and fees to stay in compliance

    Less management flexibility; must have a board of directors

    More admin; strict rules about holding meetings and keeping records

    Pricier application and filing fees if you try for 501(c)(3) tax-exempt status

    Get Started
    From $99 + state filing fees

  5. How it's unique

    No paperwork to start; you may still need a DBA or business licenses to operate legally

    One owner max

    Protections & taxation

    You're personally on the hook for business liabilities

    Taxed once—you pay on profits in your personal tax return

    Less hassle; separate tax return not needed

    Drawbacks to consider

    No personal liability protection

    Learn more

Frequently asked questions

  1. No, but you might want to. Forming an LLC, a corporation, or a nonprofit protects your personal assets and may unlock tax benefits.

  2. Personal liability protection. An LLC protects owners from being personally on the hook for business liabilities or debts. A sole proprietorship doesn't.

  3. Both protect owners so they're not personally on the hook for business liabilities or debts. Key differences include how they're owned (LLCs have one or more individual members and corporations have shareholders) and maintained (corporations generally have more formal record-keeping and reporting requirements). Even though LLCs are considered easier to start and maintain, investors tend to prefer corporations. Learn more

  4. Yes. This can be helpful for business owners who want the management flexibility of an LLC—but also want to minimize employment taxes on the profits they receive.

  5. If you plan on using a business name that's different from your personal or official company name, you're required to get a DBA in most states or counties. Learn more

  6. Depending on the nature of your business, and where it's located, you might need a license or permit to operate legally within your city, county and/or state.

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