Start a Corporation
Comparing business formation types can show entrepreneurs the distinct advantages and responsibilities of each structure. To make an informed decision, it's wise for entrepreneurs to explore these advantages before starting a new company.
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Last Updated: February 9, 2026
After the inspiration strikes for a new start-up business, one of the first decisions an entrepreneur needs to make is choosing the business formation type (or business structure or entity type) to use for their new company. The type of business structure they choose depends on how they want to run their business, how they want to be taxed, and how much personal liability they’re willing to assume.
Every type of structure has pros and cons associated with it, so it’s important for small business owners to understand the options so they can choose the one that best fits their needs and their vision. Once the structure is chosen, the business can integrate that choice into the business plan.
The simplest and most flexible business structure to protect an entrepreneur's personal assets.
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A limited liability company, commonly called an LLC, is a popular business structure because it combines the benefits of multiple business types into one. LLCs have the tax advantages of a sole proprietorship or general partnership while also providing the personal liability protection of a corporation. For a more detailed answer, see ZenBusiness’s LLC definition page.
An LLC is a separate legal entity, meaning that it and the owners (who are called “members” in an LLC) are not the same in the eyes of the law. If the LLC is sued or goes into debt, the members’ personal assets (savings, home, cars, etc.) are usually not at risk.
As with a corporation, forming an LLC does require a business owner to pay a fee and file paperwork with the state, but the management of an LLC allows for much more flexibility than a corporation, with less paperwork and fewer reporting requirements. LLC members can draft an LLC operating agreement to customize the rules for managing the company.
LLCs also have tax advantages. By default, LLCs are taxed like sole proprietorships or general partnerships. This usually means that profits are not taxed at the business level before being distributed to the members, who only pay income tax from their share of the LLC’s profits on their personal tax returns. (See ZenBusiness’s guide on how to start an LLC, or let them handle it with their LLC formation service).
More than 90% of ZenBusiness customers choose to form LLCs when they purchase a business formation plan.
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This more complex structure can issue shares or take the business public.
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The default form of corporation is a C corporation. Like an LLC, a corporation is a separate legal entity from its owners, who are called shareholders. The corporate structure shields the shareholders’ personal assets from the liability and debts of the business.
One disadvantage for C corporations is what’s known as “double taxation.” When a C corporation makes a profit, that income is taxed at the corporate level. Then, when the profits are distributed to the shareholders, they’re taxed again, this time on the shareholders’ personal tax returns.
The structure of a corporation is also more rigid. Shareholders must elect a board of directors to oversee the management of the business. In turn, the board of directors must ensure that the decisions made benefit the corporation and the vision of the shareholders. Corporations also have more complex reporting requirements and other paperwork. Decision-making can also be a slower process due to the numerous people involved with a board of directors.
Because ownership in a corporation is divided into shares, transferring ownership is actually easier than it is for other business structures, such as an LLC or partnership.
As with LLCs, ZenBusiness can help entrepreneurs navigate the corporation formation process with their business formation plans.
This tax designation could reduce taxes for certain LLCs and corporations.
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An S corporation is not really a separate kind of business structure, but a tax election status. A C corporation or an LLC can apply for S corporation status with the IRS. S corporation status is often a way for C corporations to avoid double taxation because they’re taxed like a general partnership or sole proprietorship.
One reason an LLC might opt for S corporation status is that it can save the owners money on self-employment taxes by splitting income into two groups: salary and distribution. The IRS only requires S corporation owners to pay the 15.3% self-employment tax on their salary and take the remainder as a distribution that’s not subject to self-employment tax.
S corporations do have some restrictions, though. An LLC or C corporation can file to become an S corporation only if they meet the following conditions:
The small business taxes around S corporations can get complicated, so it’s wise to consult a qualified tax professional for guidance or use ZenBusiness’ S corporation filing service.
A sole proprietorship may be the simplest type of business an entrepreneur can create; usually, new business owners aren’t required to file any paperwork with the state to become a sole proprietor. With a sole proprietorship, a single person writes the business plan and then forms, owns, manages, and controls the business. This means that all profits come directly to the owner, but they’re also personally responsible for all losses.
Advantages of a sole proprietorship include easy management, simple decision-making, and flexibility. Disadvantages include unlimited liability if the business is sued or has financial problems.
A general partnership is a company that is owned by two or more people. With this type of business structure, the partners all contribute funds to start the company, and everyone is responsible for its management. Sometimes, partners work out a partnership agreement where each person assumes specific roles within the company.
General partnerships are easy to start; they usually require no paperwork to be filed with the state. They often require less capital because multiple people contribute to the start-up costs. As with sole proprietorships, general partnerships involve unlimited liability for business debts. Sometimes, partnerships also run into trouble if partners don’t work together effectively. Learn how to form a general partnership.
A nonprofit corporation is an entity formed to benefit the public in some way. Private and community foundations can both fall under the nonprofit umbrella. Nonprofit corporations can be exempt from federal income tax, but only if they successfully apply for 501(c)(3) status with the IRS.
The tax-exempt status of nonprofit corporations is a distinct advantage of this type of business structure, and the founders and directors of nonprofit corporations also enjoy limited liability for business debts. Drawbacks include the large amount of paperwork necessary to launch and operate a nonprofit as well as high costs and ongoing public scrutiny regarding finances and expenditures.
The right business structure depends on an entrepreneur’s specific needs, circumstances, and plans for their business. Here are some considerations entrepreneurs should make to guide their decision:
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Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. For specific questions about any of these topics, seek the counsel of a licensed professional.
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