What Type of Business Should You Form?


When you first come to me, one of the first things I check is whether you have an efficient form of business.What are some forms of business?

  1. A sole proprietorship is a one person business. It is the least expensive business form.
  2. A partnership is two or more people who own and operate a business for profit. A partner is subject to unlimited personal liability for partnership debts and is liable for the negligence of another partner or a partnership employee if in the usual course of business.
  3. A corporation is a legal business entity authorized by statute. It can be owned by one or more persons, who are not liable for its debts and other obligations. A corporation must follow numerous formalities. It is taxed separately from its owner(s) unless it is an S corporation.
  4. A limited liability company is a hybrid legal business entity authorized by statute. It offers limited liability, but with more flexibility than other entities.

Which form of business should you have?  Your decision should be made with the advice of an experienced lawyer.  A lawyer like me can advise you about liability protection, the most important factor in choosing your form of business.  Cost and formalities must also be considered.

The most expensive form of business is a corporation, followed by an S corporation.  A corporation, S corporation, partnership or LLC require separate tax and financial accounting and reporting to the state.  If you are a one-person business, it is rarely effective to be a corporation or LLC because you will usually remain liable for personal injuries or contracts of your business.


When I advise a client to form a business entity these days, it is often a limited liability company (LLC).  An LLC offers the flexibility of a partnership with the limited liability of a corporation.  See Is an LLC for You?

About Wis Laughlin

I help clients with tax preparation and IRS representation, estate planning, and complex contracts, including LLC's. As a former IRS tax attorney in their National Office. Law.com picked Wis in 2017 and several prior years as one of the Top Tax and Estate Lawyers in Tennessee. I am your advocate, not your accountant. I don't tell you what you can't do. I show you how to do it.
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