Business Types 101
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
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
Better for smaller corporations
100 shareholders max
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
Best if you plan to go public one day; can issue shares to founders, employees, and investors
Unlimited owners (aka “shareholders”) allowed
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
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 prop
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
Limited Liability Company (LLC)
Limited Liability Company (LLC)
Going solo or teaming up? Make sure you're not personally on the hook for business liabilities with an LLC.
Ready to get your LLC?
Corporation (S corp or C corp)
Plan to issue shares, go public, or go global? Go further as a corporation.
Best if you plan to go public one day; can issue shares to founders, employees, and investors (C corp)
Unlimited owners (aka "shareholders") allowed (C corp)
Avoids double taxation on profits (S corp)
Recognized internationally and preferred by investors
Taxed twice if it's a C corporation—business pays at the corporate level, and shareholders pay on income received
Avoids double taxation if it's an S corporation
Less management flexibility; must have a board of directors
More admin; strict rules about holding meetings and keeping records
Ready to get your Corporation?
Nonprofit
Create an organization to give back and be eligible for tax breaks.
Tax exempt from federal income taxes with 501(c)(3) status
Less management flexibility; must have a board of directors
More admin; strict rules about holding meetings and keeping records
Ready to get your Nonprofit?
Doing Business As (DBA)
Get a business name for your sole prop without forming a legal entity, or add a new name to an existing entity.
Best if you want an official business name, but want to avoid the upkeep needed for LLCs or corporations.
Not an actual legal entity type
You're personally on the hook for business liabilities
Taxed just once if your business is classified as a sole proprietorship or partnership—you pay on profits in your personal tax return
No personal liability protection
Ready to get your DBA?
Frequently asked questions
Do I need to form an LLC, corporation, or nonprofit to start my business?
No, but you might want to. Forming an LLC, a corporation, or a nonprofit protects your personal assets and may unlock tax benefits.
What’s the main difference between a sole proprietorship and an LLC?
Personal liability protection. An LLC protects owners from being personally on the hook for business liabilities or debts. A sole proprietorship doesn’t.
What’s the difference between an LLC and a corporation?
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.
Can an LLC be taxed as an S corporation?
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.
Do I need a doing business as (DBA) name?
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.
Do I need a business license or permit to get started?
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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