Decisions when choosing a business type

Debt and Liability
Most of the small businesses and startups accept the personal liability associated with a sole proprietorship or partnership as a significant risk of doing business. If you're in a high-risk industry, such as selling CBD or firearms online, or simply want to keep your business and personal circumstances private, you can limit personal liability by filing for a more formal company structure. The downside is that this commonly takes more paperwork, costs more to register, and may have greater reporting or maintenance demands than simpler business models.

Filing taxes
You have two choices when it gets to filing your business taxes. You can record business profits/expenses on your tax returns, or you can hold your business file taxes separately as its entity. Most of the small business owners prefer the simplicity of filing taxes on their returns, but filing business taxes separately can help you keep your private and company finances separate.

Partners or Investors
If you're starting your business with a partner or private investor, you won't be able to create a sole proprietorship. You can pick between a partnership, a limited partnership, or an LLC.

Hiring employees
Some of the easiest business types like sole proprietorships can make it hard to hire workers down the road. While it's likely to change your business type to grow with your company, if you already have workers or plan to hire them, it may be better to future-proof by a more formal business structure like an LLC or corporation.

Are you beginning your company for-profit or non-profit cause? If you're just concerned with helping others and aren't going for profit, establishing a nonprofit can grant you tax-exempt status—although there's a lot of paperwork needed.

Will your business be held and operated democratically by its members with no particular owner? Known as a "Co-op", this type of company is very rare.

The most popular business types

If you're starting up your own company, you'll need to make a business plan to help you better outline your goals before doing to one of the business types below.

One of the first challenges new business people face is choosing what type of business they want to register. Although there are several different types of companies, choosing one doesn't need to be difficult. Here are the seven most commonly-used business types and some questions to help you pick which company type is right for your startup:


Business types

• Sole Proprietorship is the easiest type of business. Sole proprietorships are held and operated by a single person and are easy to set up.
• Partnership: A company held by two or more people who share responsibilities and earnings.
• Limited Partnership is a business partnership, often between business directors and investors.
• The corporation is a type of fully-independent company with shareholders. One of the most difficult business models.
• Limited Liability Company (LLC) is a mix of a partnership and a corporation, created to make it easier to begin small businesses. One of the most popular company types for startups.
• Nonprofit Organization is a type of company that uses its profits for charitable goals. Tax-exempt, but must match particular rules.
• Cooperative (Co-op) is a business controlled and operated for the benefit of the members of the company that use its services.

Picking the best kind of business
A startup's selection of business structure can have long-lasting effects on the way the company is run and works, including how it files taxes and whether it can hire workers.