The Different Types of Business Formation

One of the most important decisions business owners will ever make is choosing the right type of formation. This choice ultimately determines your tax situation and the type of regulations you will need to follow in accordance with local, state and federal law. Since there are several different types of business formations for you to consider, it helps to know what they are.

Business classifications are not a one-size-fits-all solution. There are many factors that can affect your decision, such as capital investments, taxes, partnerships, liabilities and more. There is also some degree of complexity involved that is dependent on the type of business formation you choose. Also, certain classifications have more requirements than others.

Limited liability companies

LLCs have a complex structure that many business owners find beneficial. Many people enjoy the flexibility that these types of partnerships offer, including limited responsibility for certain taxes and protection for their personal assets. The owners of them are members. There are different ways to set up LLCs. To ensure that your company is structured properly, you should learn more about the pros and cons of this designation.

Limited liability partnerships

Limited liability partnerships are owned by partners instead of corporations. They have many of the same tax advantages as limited liability corporations. However, they must follow the guidelines that govern partnerships. As a partner, you are liable for the actions or negligence of employees and partners in the business.


Many business owners elect to classify their organizations as S-corporations because doing so allows them to share their tax liability between the corporation and its shareholders. There are partnership rules and IRS stipulations that must be followed. Also, before you can form an S-corporation, you must first establish your business as a corporation. Owners are not shielded from any consequences that result from negligence or misconduct involving their employees.


A C-corporation is also known as a corporation that can buy and sell stocks and property. It is also subject to litigation when lawsuits arise. They have more complex rules governing how they are managed. Any debts and liabilities that your business incurs are the responsibility of the corporation, not its shareholders, because it is an independent entity.

You should give careful consideration to your business goals and financial situation when filing your business’ classification. Matters involving business formation can be challenging for you to understand on your own. If you find yourself in need of guidance on the matter, you should seek out assistance from a professional who specializes in business law.

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