Which Type of Business to Choose

Choosing the right type of business is an important decision that you make when creating a business that can effect many different aspects of the business as it goes forward . That is because each type has different pros and cons to it which affect how much you are taxed, what your legal liability is, how much it costs to operate, how much it will cost to form, and more. There is also a plethora of different types of businesses, with the major ones being a sole proprietorship, general partnership, limited liability company (LLC), and a corporation. Here is a review of some of the pros and cons of each one:

Sole Proprietorship – This is an unincorporated business that is owned by one person – the sole proprietor.


  • – You have full management authority when you are the only person

  • – Very few reporting regulations and formalities

  • – Low cost of organization

  • – Benefits to income tax


  • – Unlimited liability as you are the only person

  • – The business will cease to exist if you leave

  • – Difficult to raise capital

  • – Management is not diverse

As you can see, there are quite a lot of pros and cons for just one type of business. It is important to weigh them against each other to see what will best suit your needs. The next type is general partnership.

General Partnership – This business is comprised of two or more people who carry on as co-owners of that business.


  • – Any partner can manage

  • – Very few formalities and reporting requirements

  • – Low organizational cost

  • – No double taxation


  • – Most of the time a partner can be held personally liable for the debts and obligations of the partnership

  • – The partnership may not be taxed in a way that is beneficial for all partners

  • – Difficulty to raise capital

  • – Hard to transfer interest

Limited Liability Company (LLC) – This is a cross-between a corporation and a partnership. In an LLC, the members own the company and either manage or delegate to others.


  • – All owners have limited liability

  • – Easy to raise capital for the business

  • – Taxing is beneficial

  • – Management is flexible


  • – It is possible to pierce the LLC Veil

  • – There are some formalities and reporting requirements

  • – Difficulty in transferring ownership

  • – There is a lack of state LLC law uniformity

Corporation – This is an organization formed under either state or federal law and exists as a separate being (an artificial person).


  • – Shareholders have limited liability

  • – The business will continue on usually after owners leave

  • – It is easy to raise capital


  • – Usually high legal expenses

  • – Double taxation

  • – Corporate formalities and reporting requirements

Once again, there are plenty of different types of companies to choose from when forming a business. Depending on how much money you are starting with, what your future goals are, what it is you are selling or offering, or how much protection you want to have, there will most likely be a correct answer for you. If you find that this incredibly important decision might be too much to handle alone, feel free to call us at Fortman Law and we will be happy to help you!