6 Types Of Business Ownership: Definitions, Pros & Cons

When choosing a business ownership structure type, think about what you’re protecting, whether or not there will be other owners, whether you plan on getting investors or not and how you want the taxes to be paid. Most people consult with a lawyer and a tax professional before making a final decision on which entity is best.

One of the most important things you can do as an owner is to limit your personal liability for business debts and liabilities. This is what most entities start with—reducing your exposure. From there, you want to consider how the profits are distributed and thus taxed. If profits are passed through, that means that you add the profits to your personal tax return. This avoids double taxation, which can happen with a C-corporation.

However, if you plan on getting outside investment or plan on selling the company, a C-corporation is the easiest to manage. That being said, corporations have boards of directors and must have annual meetings and have more required filings than other business structures.

Ultimately, you want to choose a business type that protects you while meeting your tax and growth needs.

Bottom Line

Starting a new business can be overwhelming because of all the choices that are available for the business type. Take the time to review what you want for liability structure, tax structure and how flexible you want ownership to be. These are the key considerations and differences between the different entity types.

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