When starting a business, one of the crucial decisions you must make is the type of business formation that suits your needs and goals. Your choice can have a major impact on various aspects of your business.

Tax obligations, liability concerns and management structure are all determined by the type of business formation you choose. Exploring the common types of business formations can help you decide which one might work best for you.

Sole proprietorship

A sole proprietorship is the simplest form of business ownership. It is ideal for individuals looking to start small, like freelancers or consultants. In this setup, you are the sole owner, and you have complete control over your business. However, keep in mind that you are personally liable for all business debts and obligations.


Partnerships involve two or more individuals sharing ownership and responsibility for the business. In a general partnership, all partners have equal responsibility and liability. Limited partnerships, however, allow some partners to have limited liability while having less control over the business.

Limited liability company

LLCs offer a balance between the simplicity of a sole proprietorship and the liability protection of a corporation. As an LLC owner, you are not personally liable for the company’s debts. This means your personal assets are secure. An LLC also provides flexibility in management and taxation, making it a popular choice for small businesses.


Corporations are separate legal entities from their owners, which means they offer the most liability protection. However, they are more complex to set up and maintain. Corporations can issue stock and have a board of directors, providing opportunities for outside investment.

Data shows that about 1 in 5 businesses fail within their first year of operation. This is often due to mistakes or miscalculations during the business’s foundation. Choosing the right business formation to suit your goals is one way to help ensure long-term success for your enterprise.