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November 30, 2015 10:45 am

Choosing The Right Business Entity (Infograph)

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You started your business, now what? It’s time to make that baby official. Whether you’re starting a business by yourself or getting others involved, it’s important to know what type of entity your business is. If you’re working solo, your business is a sole proprietorship. Or if you started a business with your college besties and you’re all in it for the long run, your business could be a general partnership. Still confused? Go through this infograph to help you decide what direction you want to take your business.

Editor’s Note: Business entities and laws may vary from state to state, it’s best to research your state’s laws when deciding what type of business you will create, join or establish.


Are you a blogger? Are you the only person running your business? Sole proprietorship is the easiest and simplest business form. There is only one person running the whole show. Under sole proprietorship, the business name can be under the creator’s name or a business name, ie. Hell’s Angels Tshirt Shop. The business name can be a fake name or trade name. The trade name or fake name doesn’t create a legal entity from the sole proprietor or owner. Sole proprietors signs the contracts, have bank accounts under the owner’s name, and customer’s can write check to the owner or the fake business. Sole proprietors are liable for all debts and loans of a sole proprietorship business.


happy business woman on an isolated white background with business team




When a small business turns into a corporation, it’s classified as a C Corporation. The corporation is legally seen as its own entity, separate from the owners who are shareholders. Any debts or loans acquired are the corporation’s responsibility. If the corporation gets sued, shareholders are only responsible for what they’ve invested in the business. Shareholders own personal assets or property would not be affected. The positions of a corporation are shareholders, directors, officers and employees.



Limited Liability Company (LLC) is a combination of a partnership and corporation. An LLC has limited liability protection for owners like a corporation but has pass-through tax status like a partnership. An LLC is like a partnership but the partners have full limited-liability protection which means partners aren’t responsible for any debts or actions made by the company. Owners are considered members and depending on the state.LLCs vary from state to state so its best to research the laws pertaining to the state you live in. Although LLC regulations vary by state, general principles include choosing a business name, file the articles of organization (a document that recognizes your LLC with the business name, address and names of members), create an operating agreement, obtain licenses and permits, hire employees and announce your business.




Limited partners have no personal liability except for their investment. Limited partners are unable to be in general management or participate in day-to-day operations. A good example of a limited partnership involves a silent partner who provides financial support for the business while the general partner handles operations. Depending on the state, limited partnership agreements must be in writing. The limited partner can be subject to special tax liabilities.



S Corporations or S Corps is a regular corporation that has anywhere between 1 to 100 shareholders. S Corps are created through an IRS tax election. According to the IRS, S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. The main difference between a regular corp (C Corp) and an s corp is profits and losses can pass through tax returns. Shareholders are taxed but the business itself is not taxed.



A joint venture is when two or parties join forces to create an alliance or in most cases, a business. The parties form a partnership to share markets, intellectual property, assets, knowledge, and profits. The partnership can be between two small businesses, companies with similar products or a small business joining a big business to acquire resources that can be hard to obtain individually.



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In a general partnership, the partners handle management and take responsibility for partnerships debts and other agreements. General partners own the business. It’s important to create a written partnership agreement that addresses the purpose of the business, the authority and responsibilities of each partner. When creating an agreement, it’s important to consider how the ownership interest will be shared, how decisions will be made (ie voting rights) and what happens if a partner quits.


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