Which legal structure is right for your business?

One of the first decisions a new business owner makes is what type of legal structure the business will have. There are several different ways to set up your company, and each will affect taxes, financing, and your personal liability.

Let’s examine the options and the benefits and drawbacks of each. Of course, your individual circumstances will dictate which structure makes the most sense for you, so be sure to get professional legal advice before making a final decision.
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SOLE PROPRIETORSHIP
A sole proprietorship is a business that gives you complete control over your business.  
Because a sole proprietorship is not a separate business entity, your business assets and liabilities are not separate from your personal assets and liabilities. 
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PARTNERSHIP
Partnerships are the simplest structure for two or more people to own a business together. 

The two common kinds of partnership are limited partnerships (LP) and limited liability partnerships (LLP). 
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CORPORATION
A corporation is a legal entity that's separate from its owners. 

Corporations offer the strongest protection to its owners from personal liability, but the cost to form is higher than other structures. They have an independent "life" from their shareholders. 

LIMITED LIABILITY COMPANY (LLC)
An LLC is a hybrid form of business ownership that takes advantage of benefits from both a corporation and a partnership. 

LLC's protect you from personal liability in most instances if your LLC faces bankruptcy or lawsuits.
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WATCH

Watch this short video to learn about the different business structures and how to pick the right fit for your business.
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LEARN

The Department of Labor has interactive, online tools to help you learn about Federal employment laws. 
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NEED HELP?

The Department of Labor has local offices you can contact for assistance.

Getting Started

Choose a business name. 

This may be your own personal name or a trade name. If you’re using a trade name, most states will require that it be different from any other currently in use there. Check your state requirements and do a search with the appropriate agency to make sure the name is available.

Register your business name. 

Many states require sole proprietors to register your Doing Business As (DBA) name. However, if you are simply using your own personal name as your business name, there is no need to register with your state.

Apply for appropriate licenses and permits. 

Most states will have a database of professions and occupations, and the licenses required. Search online for your state and “professional licensing.” Also file any required local paperwork, such as local permits or zoning.

Apply for an employee identification number (EIN). 

This is a 9-digit number issued by the Internal Revenue Service to keep track of businesses. You’ll need this number to report your employee's wages to the IRS. Some banks will ask for an EIN to open a business bank account. You also need it to register your business or file taxes. It’s important for tax purposes to keep your business and personal finances separate, so set up a business bank account and get a business credit card. All businesses must apply for an Employer Identification Number (EIN) with the Internal Revenue Service.

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