Choosing Your Business Structure

When starting a business, the first question you ask is “What type of business structure do I want to create, a corporation, an LLC, or a partnership?” From a legal point of view, I am only concerned with a company’s liability protection. Most times I refer this question to the business owner’s accountant.

  • The business owner’s accountant will address 4 concerns.
  • How do I protect my company from lawsuits?
  • How am I going to pay taxes?
  • Will I need financing and lines of credit?

Do I have the administrative staff to deal with bookkeeping, sales tax, estimated taxes, etc.?

The 4 Types of Business Structures

There are 4 general types of business structures.

a. Sole Proprietorship

b. General Partnership
(i) Limited Partnership

c. Limited Liability Company (LLC)

d. Corporation
(i) “C” Corporation
(ii) “S” Corporation
(iii) Professional Corporation (PC)

Sole Proprietorship:

A Sole Proprietorship is the simplest business structure and the owners are only an individual or a married couple.


  • There is no documentation to file with the State and no corporate franchise taxes.
  • Your net business income (gross income minus expenses) is taxed through your personal income tax statement as personal income.


  • Your personal assets are not protected from lawsuits.
  • You must pay estimated self-employment tax during the course of the year since no taxes are being withheld from your income.


A General Partnership consists of 2 or more partners who are not married.


  • No corporate documentation to file and no franchise taxes or fees.
  • You have a partner to bounce ideas off of (but you must set up a Partnership Agreement to protect yourself).
  • Your net business income (gross income minus expenses) is taxed through your personal income tax statement as personal income.

Limited Partnerships:

Limited Partnerships are the same as General Partnerships, but the liability is shared between the limited and general partners. The general partners may be personally liable for lawsuits but limited partners are not.

Limited Liability Company (LLC):

An LLC is a corporate entity that protects your personal assets from lawsuits, but allows your business income to be taxed only once as personal income.


  • Corporate protection from personal liability from lawsuits.
  • Profits are taxed only once through the members’ personal tax returns.


  • In New York State, you must file the LLC with the State and publish notices of the existence of the LLC which may be costly.
  • A customized Operating Agreement between members must be prepared.
  • A separate tax return must be prepared for the LLC,
  • Members are also taxed on profits that are not actually distributed, just like a

“C” Corporation:

A “C” Corporation is your typical corporation which is registered through the State. It sells shares of stock to raise money and shareholders are owners of the corporation based upon the numbers or the amount of their investments.


  • Shareholders protect their personal assets completely from corporate lawsuits.
  • Ability to raise investment capital through the sale of stock.


  • i. Registration with the State and many start-up fees and costs to file separate corporate taxes.
  • ii. Profits are taxed twice, at a corporate level and then each individual shareholder
  • pays his/her own taxes.

“S” Corporation:

An “S” Corporation is the same as a “C” Corporation except the IRS allows you to file your “C” Corporation taxes through your personal taxes, thereby eliminating double taxation.


  • Allows a small business to pay taxes only once on the shareholders’ personal returns.
  • Shareholders can still protect their personal assets from corporate lawsuits.
  • Shareholders, unlike partners, can simply sell their shares of stock and remove themselves from the corporation.
  • Ability to raise investment capital through the sale of stock.


  • “S” Corporations are limited to 100 shareholders and only one class of stock is permitted.
  • Corporate startup fees are similar to a “C” Corporation.
  • Both “S” and “C” Corporations must utilize specialists to deal with their taxes, accounting and human resource compliance issues.

Professional Corporation:

A Professional Corporation (PC, PLLC or LLP) is a corporation that is designed for certain types of professionals such as doctors, lawyers and accountants, who may be exposed to higher risks of liability.


  • Unlike a partnership, one partner is not liable for another partner’s misconduct or negligence.
  • You can choose between a corporation, LLC or partnership for your Professional Corporation’s taxation and accounting needs.


  • A Professional Liability Partner is still liable for his own negligence, wrongful acts, errors or omissions even though the corporation is not.
  • Each state maintains its own rules regarding Professional Corporations, the partners’ liability and taxation.


The corporate structure of your business is going to be tailored to the size of your business, your concerns of liability, your tax concerns, and whether you will need to raise investment capital for your business.

Many people will rush online and take advantage of these websites that offer to incorporate for $100. Don’t rush into your choice of a corporate structure.

Both an attorney and accountant should be consulted before you choose your corporate structure.

***Once you file your business as a corporation, corporate taxation, franchise taxes and corporate registration fees will be incurred by the State whether you decide to proceed with your business or immediately dissolve your business.

As always, please feel free to contact me for a free consultation regarding your specific financial circumstances.

For more Bankruptcy facts and articles, please see my website at
I have been practicing Bankruptcy law, Business law and Litigation for over 25 years.

The Law Offices of Allen A. Kolber, Esq. is a full service law firm that provides quality representation in the following areas:

  • Bankruptcy Law and Litigation
  • Foreclosure Defense
  • Loan Modifications/Short Sales
  • Business and Corporate Law and Litigation