Types of Business Entities

Probably one of the most confusing yet important decisions you will need to make is what form of businesses entity do you want your business to be. The following is a brief, non-inclusive, outline of the different types of business entities. Again, it is recommended you consult your business professional or an attorney to advise you as to the right entity for your business:

Sole Proprietorship

This is the most common form of business entity. It is an entity where an individual simply runs a business and reports his/her income on their personal income tax return. The revenue and expenses of the business are reported on Federal Schedule C. It is administratively the easiest to run, but carries unlimited liability to the owner, extending to their personal assets.


Partnerships are a form of business whereby there are two owners in the business, and generally, the partners have unlimited liability in their personal assets. Partnerships file informational returns only (Federal Form 1065), as their income/loss is reported on the partners individual tax returns.

"C" Corporations

These types of entities are common in business because they allow a number of shareholders to own them and limit liability to shareholders to only what they invest in the corporation. However, "C" corporations can sometimes require a higher level of bookkeeping and record retention and they must be incorporated with the state.

"S" Corporations

Referred to as a small business corporation, the "S" corporation tries to combine the advantages of limited liability to shareholders with the advantages of a partnership, with less paperwork. There are a maximum of 35 shareholders allowed .

Limited Liability Companies (


These entities are designed to offer liability protection to partners in the LLC, but retain the advantages of a partnership. Most of these entities are taxed similar to a partnership, but each individual LLC can be different. Many professionals such as architects, accountants and lawyers have moved to this type of entity as it often provides liability protection to a partner when another partner is negligent.