Entity type refers to the legal structure or form a company takes, such as a sole proprietorship, partnership, corporation, or LLC, which determines its rights, liabilities, and taxation.
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Last Updated: December 1, 2025
There are various types of business entities in the U.S. today, but the most common ones include:
Each legal entity has specific benefits that may make it more attractive than others for different entrepreneurs. The rest of this guide will explore these entity types and their advantages and disadvantages.
A sole proprietorship is one of the most common types of business in the U.S. Unlike LLCs and corporations, a sole proprietorship doesn’t need to register with the state. However, a sole proprietor may want to file a fictitious business name — otherwise known as a doing business as name(DBA). Filing a DBA will put the business on record with the state, even if there are no other state filing requirements. That said, business owners will need to double-check their state requirements; some states require DBA registration (or call it by a different name, like a trade name or fictitious name).
Starting a sole proprietorship gives the owner the benefit of being the sole manager and owner of the business. The owner gets to set the tone of the business without having to involve anyone else in the decision-making process. However, this business structure subjects the business owner to personal liability in the event of a lawsuit; the owner’s personal assets (their house, their car, their savings) could be seized if the business is sued.
General partnerships, like sole proprietorships, don’t have to register with the state. However, most partners will at least have a contractual relationship (often called the partnership agreement). The benefit of a partnership typically depends on the contractual relationship, as many partnerships don’t split profits equally. Instead, each partner’s share usually depends on the amount they’re able to invest in the business.
One of the main benefits (and potential downfalls) of a partnership is that all partners share in profits and losses. If there’s a reason that the partnership owes a debt, each partner will split the losses depending on the terms of their partnership agreement (or according to default rules if there isn’t an agreement). Although partnerships do also enjoy the benefit of pass-through taxation, they come with the burden of exposure to personal liability like sole proprietorships.
A limited liability company is a legal entity that must register with the state. LLC formation occurs by filing a legal document commonly referred to as the Articles of Organization (some states have different names, like the Certificate of Formation). LLCs are often more attractive to business owners when searching for a legal entity type with a well-balanced collection of advantages.
The main benefit to an LLC is that it reduces the amount of personal liability that owners, called “LLC members,” of the company may face (see LLC members definition). The members of the LLC aren’t required to pay for its debts with their personal assets in the event of a lawsuit against the company.
Another advantage is the benefit of pass-through taxation that LLC members enjoy. Pass-through taxation allows profits from the business to flow directly to the owners’ personal taxes without first being taxed at the business level. This is similar to the tax structure used by sole proprietorships and general partnerships, and it’s a distinct advantage over corporations.
A corporation is an entity type that’s formed by filing a document called the Articles of Incorporation with the state (other state names for the form include the Certificate of Incorporation, Corporate Charter, and similar titles). Corporations are owned by shareholders and controlled by a board of directors. It’s a more rigid structure than the LLC.
Corporation owners also enjoy limited personal liability, like LLC members. A debtor can’t reach any of the shareholders’ personal assets, in most cases, if the corporation is sued. That said, corporations are often subject to what’s known as “double taxation,” in which profits are taxed first on the corporate level and again when shareholders file their personal taxes.
The corporation’s biggest advantage over an LLC is the ability to issue stock. Most investors strongly prefer buying stock in a corporation over buying an ownership share in an LLC; venture capital firms rarely invest in LLCs.
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ZenBusiness offers business owners expert support with their business formation plans. They can help both new and seasoned business owners navigate the process of business formation. After choosing an entity type, a new entrepreneur can count on ZenBusiness to provide the needed assistance to form a new LLC or corporation.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Written by ZenBusiness Editorial Team
The ZenBusiness Editorial Team has more than 20 years of combined small business publishing experience and has helped over 850,000 entrepreneurs launch and grow their companies. Our writers and business formation experts are dedicated to providing accurate, practical, and trustworthy guidance so business owners can make confident decisions.
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