Starting a business is exciting but also comes with critical decisions, and one of the most important is choosing the right business structure. This decision affects:
- ✅ Taxes – What forms you need to file and when
- ✅ Liability – Whether your personal assets are protected
- ✅ Complexity – How much paperwork and legal setup is required
There's no single best business type—the right one depends on your business goals, number of owners, and risk tolerance. Below, we explore the five most common business structures for freelancers and small business owners, explaining ownership, how to set up, liability, taxation, and tax deadlines.
Sole Proprietorship: The Simplest Option
A Sole Proprietorship is the easiest business type to start, making it a popular choice for freelancers, consultants, and solo entrepreneurs.
Ownership
Owned and operated by one person.
How to Get Started
- No formal registration required
- May need local business licenses or permits
- Can operate under your legal name or a DBA (Doing Business As)
Liability
Unlimited personal liability—your personal assets are at risk if the business incurs debts or lawsuits.
Taxation
- Self-employment taxes apply (Social Security & Medicare)
- Income is reported on your personal tax return
📅 Tax Deadlines:
✔ Form 1040 with Schedule C (Profit or Loss from Business) – Due April 15
Partnership: When You Have a Business Partner
A Partnership is for businesses with two or more owners sharing profits, losses, and decision-making.
Ownership
- Two or more owners split responsibilities and profits
- Can be a General Partnership (GP) or a Limited Partnership (LP)
How to Get Started
- Draft a Partnership Agreement (recommended but not required)
- May need to register the business name and obtain necessary licenses
Liability
- General Partnership (GP): All partners have unlimited liability
- Limited Partnership (LP): General partners have unlimited liability, but limited partners' liability is restricted to their investment
Taxation
Pass-through taxation – the partnership does not pay taxes directly. Instead, income passes through to partners, who report it on their personal tax returns.
📅 Tax Deadlines:
- ✔ Form 1065 (Partnership Income Return) – Due March 15
- ✔ Schedule K-1 (Form 1065) (each partner's share of income) – Provided to partners by March 15
Limited Liability Company (LLC): Best for Liability Protection
An LLC is a flexible structure that provides personal asset protection with fewer formalities than a corporation.
Ownership
Can be a Single-Member LLC (one owner) or Multi-Member LLC (two or more owners).
How to Get Started
- File Articles of Organization with the state
- Some states require an Operating Agreement
Liability
Owners have limited liability—their personal assets are protected from business debts.
Taxation
By default, an LLC is taxed as a Sole Proprietorship (Single-Member LLC) or Partnership (Multi-Member LLC), but can elect S Corp or C Corp taxation for tax benefits.
📅 Tax Deadlines:
- ✔ Single-Member LLC: Form 1040 with Schedule C – Due April 15
- ✔ Multi-Member LLC: Form 1065 & Schedule K-1 – Due March 15
- ✔ LLC electing S Corp taxation: Form 1120S & Schedule K-1 – Due March 15
- ✔ LLC electing C Corp taxation: Form 1120 – Due April 15
S Corporation: For Tax Efficiency
An S Corporation (S Corp) allows business owners to minimize self-employment taxes while maintaining liability protection.
Ownership
Limited to 100 shareholders, who must be U.S. citizens or residents.
How to Get Started
- File Articles of Incorporation with the state
- Elect S Corp status by filing Form 2553 with the IRS
Liability
Shareholders have limited liability.
Taxation
- Income is passed through to shareholders (avoiding corporate tax)
- Owners must pay themselves a salary, which is subject to payroll taxes
📅 Tax Deadlines:
✔ Form 1120S & Schedule K-1 – Due March 15
C Corporation: For High Growth & Investors
A C Corporation (C Corp) is best for businesses that want to scale, raise capital, or attract investors.
Ownership
Unlimited shareholders allowed, including foreign investors.
How to Get Started
- File Articles of Incorporation with the state
- Must appoint a board of directors and follow corporate formalities
Liability
Shareholders have limited liability.
Taxation
C Corps face double taxation:
- The corporation pays taxes on profits
- Shareholders pay taxes on dividends
📅 Tax Deadlines:
✔ Form 1120 (Corporate Tax Return) – Due April 15
Comparison Table: Business Structures & Tax Deadlines
| Business Type | Ownership | Setup Process | Liability | Tax Forms | Filing Deadline |
|---|---|---|---|---|---|
| Sole Proprietorship | 1 owner | No formal registration | Unlimited personal liability | Form 1040, Schedule C | April 15 |
| Partnership | 2+ owners | Partnership Agreement recommended | Unlimited (GP) / Limited (LP) | Form 1065, Schedule K-1 | March 15 |
| LLC (Single-Member) | 1 owner | File Articles of Organization | Limited liability | Form 1040, Schedule C | April 15 |
| LLC (Multi-Member) | 2+ owners | File Articles of Organization | Limited liability | Form 1065, Schedule K-1 | March 15 |
| S Corporation | Up to 100 shareholders | File Articles of Incorporation & Form 2553 | Limited liability | Form 1120S, Schedule K-1 | March 15 |
| C Corporation | Unlimited shareholders | File Articles of Incorporation | Limited liability | Form 1120 | April 15 |
Which Structure is Best for You?
If you're a freelancer or single business owner looking for the simplest option, a Sole Proprietorship is the easiest to start. However, it does not protect your personal assets.
If you want liability protection, forming an LLC is a great choice. It gives you flexibility in taxation and safeguards your personal assets.
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