If you’re in the process of starting a business, you know you have a long list of legal boxes to check. One of the first is deciding what type of business ownership, also known as business structure, you want to establish. Here are the seven
primary business ownership types.
The Seven Most Common Forms of Business Ownership
- Sole proprietorship. Sole proprietorship is the most common form of business ownership in the U.S. because of the simplicity and control it affords owners. In this structure, the owner is personally financially liable for the business.
- Partnership. In a partnership, one person has unlimited liability while their partners have limited liability. This structure is the simplest for two or a few people to own a business together.
- C Corporation (C Corp). A C corporation, or C corp, is a for-profit business that is a separate legal entity from its owners. C corps pay income tax on their profits (and sometimes also on dividends paid to shareholders), whereas sole proprietors, partnerships, and LLCs do not.
- S Corporation (S Corp). An S corporation, or S corp, avoids the double taxation to which C corps are subject. Some states do not recognize S corps and treat them like C corps, so owners must register with the IRS and their state to get S corp status.
- B Corporation (B Corp). A B corporation, or B corp, is a benefit corporation. These are taxed in the same way as a C corp, but are both mission- and profit-driven. They provide public benefits, such as offering environmentally friendly or cruelty-free products.
- Nonprofits. Unlike B corps, nonprofits or 501(c)(3) corporations are driven solely by mission, which is typically related to charitable, educational, scientific, arts-related, or religious purposes. Owners must register with the IRS, and most profits must be used to fund their mission.
- Limited Liability Company (LLC). A limited liability company provides the benefits of both a corporation and a partnership. Owners pay lower tax rates than a corporation and are protected from personal liability, but must sign a business ownership agreement or
operating agreement.
What Is the Best Form of Business Ownership?
The best form of ownership depends on the nature of the business and how much freedom, control, tax responsibility, and general liability the owner or owners want to have in making decisions. Corporations are obligated to be governed by a board of directors, whereas sole proprietorships, partnerships, and LLCs are not; most business structures offer more liability protection than sole proprietorships and partnerships. Some structures are taxed more heavily than others.
How to Get Help With Choosing a Type of Business Ownership
Choosing a business structure is part of writing a long-term business plan. If you own a growth-minded small business in Northwest Chicagoland and are seeking help with planning, consider joining a business accelerator program with Next Level Northwest. We support regional and local businesses through collaborative and innovative initiatives to help grow the economy. Download our Program Overview (PDF).
Ready to take your business leadership to the next level? Download and prepare your application following this process today!
