The following is not intended to be legal or tax advice but can serve as a quick overview of some common types of legal structures for small businesses. Under a Sole Proprietorship structure: - There is one owner of an unincorporated business.
- All profits and losses are reported and taxed on the owner’s personal tax return.
- Liabilities are the personal responsibility of the owner.
Under a Partnership structure: - Two or more people own an unincorporated business.
- The partners jointly control the business.
- The business files its own tax return, but the profits and losses are taxed on the partners’ personal tax returns.
- Profits and losses are shared among the owners based on their partnership agreement.
- Each partner individually bears full responsibility for all of the liabilities of the business.
Under a Corporation structure: - The business is a legal entity separate from its owners (stockholders).
- The business files its own tax returns.
- For tax purposes, a corporation may be a C-Corp or an S-Corp. A C-Corp pays its own taxes. An S-Corp is taxed like a partnership.
- Stockholders have some protection from the liabilities generated by the business.
Under a Limited Liability Company (LLC) structure (a hybrid of a partnership and a corporation): - Ownership percentages, profit and loss distributions and voting powers are defined in an agreement.
- The business files its own tax returns but offers the same tax advantages as a partnership.
- The business provides the owners with some protection from the liabilities generated by the business.
I cannot emphasize enough how important it is to seek help from a professional when evaluating and selecting a business structure. What may be right for your friend or neighbor may not be right for you. Moreover, a legal structure that may be beneficial from a tax perspective may be negative from an operations perspective. That’s why it’s best to consult a trusted professional to help you make the final decision. Jennifer H. Elder is a CPA and certified management accountant (CMA). She is currently the CFO for Nohl Crest Homes, a semi-custom builder in Tampa, FL. | 
Whether you are planning to start a home building or remodeling business, thinking of reorganizing your company or want to start a new division, it’s important to consider the pros and cons of various types of legal structures (also known as business structures), because each one impacts you and your business differently. 