Business Formation Guide
When starting a small business, one of the first decisions you’ll need to make is choosing the best business structure. The three most common formal business structures for small businesses are:
- Limited Liability Companies (LLCs) – the most popular choice for small businesses
- Corporations
- LLCs taxed as S Corps
- DBA (Doing Business As)
Factors to Consider When Choosing a Business Structure
When deciding on the best business structure for your small business, there are several key factors to consider. These factors will help you determine which structure aligns best with your business goals, personal liability concerns, and tax planning strategies:
- Personal asset protection
- Tax benefits
- Management structure
- Compliance requirements
Learn more about how to choose the best business structure for your small business
1. Limited Liability Company (LLC)
LLCs are the most popular choice for small businesses, and for good reason. Some of the key benefits of forming an LLC include:
- Offers personal asset protection and flexible management options
- Protects personal assets from business debts and lawsuits
- Easier to form and maintain compared to corporations
- Fewer paperwork and compliance requirements
Learn more about what an LLC is and how it works
Find out if you should start an llc
Follow our step-by-step guide on how to form an LLC
2. Corporation
Corporations are a more complex business structure that is best suited for larger businesses or those planning to raise capital. Here are some of the main characteristics of corporations:
- Separate legal entity owned by shareholders
- Offers the strongest protection for personal assets
- More complex formation and maintenance requirements
- Can raise money by selling stock
Learn how to start a corporation step-by-step
3. LLC Taxed as an S Corp
Some LLCs may benefit from being taxed as an S Corp, which can offer potential tax savings. Here are a few key points to keep mind mind before choosing this option:
- Can provide tax benefits for some businesses
- Helps business owners save on self-employment taxes
- Comes with additional requirements and restrictions
Learn more about what an S Corp is and how it works
Compare S Corps, C Corps, and LLCs to see which is right for your business
Remember, while you can change your business structure later, it’s best to choose the right structure from the start to avoid unnecessary complications and costs down the road. Consider consulting with a business attorney or accountant to help you make the best decision for your small business.
4. DBA (Doing Business As)
A DBA is not a formal business structure and carries no personal liability protection. It is just a name that your business can use instead of its legal name.
Learn more about DBA’s and whether you should use one in addition to your formal business.