Every business is different. They vary in their goals, start-up costs, overhead, investor interest, financial backing, and risk tolerance, just to name a few.

There is no one-size fits all approach to selecting the best entity for a business. Options range from a sole proprietorship, which is simple, easy, an inexpensive, but provides no shield for personal liability, to a complex system of multilayered business entities designed to provide maximum personal liability and minimum tax liability, to everything in between.

There are limited liability companies (LLCs), limited partnerships (LPs), limited liability limited partnerships (LLLPs), family limited partnerships (FLPs), C corporations, S corporations, and sole proprietorships, to name a few. Consider some of the advantages and disadvantages of each:

Sole Proprietorship

  • Business is no different than the person.
  • No liability protection—individual is liable for all debts of the business.
  • No filing requirements, and no registration cost or annual filing with secretary of state.
  • Taxes from the business are reported on personal tax returns.
  • No requirement to pay unemployment tax on sole proprietor (although he or she may pay unemployment tax on employees).

  • Owners may freely mix business and personal assets.

  • Owners cannot raise capital by selling an interest in the business, they can only take loans.

  • Sole Proprietorships rarely survive the death or incapacity of their Owners and so do not retain value.

Limited Partnership

  • Easy and relatively inexpensive to form.
  • General partners control the business and are personally liable for its debts.
  • Limited partners have no control over the business and are generally immune from debts of the company beyond their own investment.
  • No required annual meetings.
  • Few ongoing formalities required.
  • Partners' shares of profit and loss are reported on personal tax returns.
  • Tax burden is usually lower than with an LLC or corporation.

Limited Liability Company

  • Owners are protected from personal liability for company debts and obligations.
  • LLC's enjoy partnership-style, pass through taxation, which is favorable to many small businesses.
  • LLC's are easy to operate and maintain.
  • LLC's may actually offer greater liability protection then corporations do.
  • Have charging order protection.
  • LLC's are not appropriate for business seeking to become public eventually or to raise money in the capital market.
  • LLC's are more expensive to set up then partnerships.
  • LLC's usually require periodic filings with the state and annual fees.
  • Some states do not allow the organization of LLC's for certain professional vocations.


  • Owners are protected from personal liability for company debts and obligations.
  • Corporations have a reliable body of legal precedent to guide Owners and Managers
  • A corporation is the best vehicle for companies eventually going public.
  • Corporations can more easily raise capital through the sale of securities.
  • Corporations can easily transfer ownership through the transfer of securities.
  • Corporations can have an unlimited life.
  • Corporations can create tax benefits under certain circumstances, although C corporations may be subject to double taxation on profits.
  • Corporations require lots of annual meetings and require Owners and Directors to observe certain formalities.
  • Corporations are more expensive to set up then most other structures.
  • Corporations require periodic filings with the state and annual fees.

To find out which entity is best for your business, speak to a qualified legal advisor familiar with the advantages and disadvantages of each.