Growth Strategies

How to Choose the Best Business for Your Company

business type

The most important decision in starting a business involves deciding what type of business to form. While you will get a lot of advice, it is important to consider the tax, control, and liability issues.

This article will discuss the pros and cons of each major business type to help you make the right decision about your new venture.

  • Two types of business are most important for tax purposes: corporations that are independent of their owners and pass-through business that file their taxes with their personal tax returns.
  • When choosing a business type, it is important to take into account the cost of starting and running, as well as control, taxes, liability, and costs of operations.
  • The tax situation for a business includes income taxes from federal and state sources, as well as whether or not the owner is required to pay Social Security or Medicare taxes.
  • There are many types of corporations and partnerships, as well as special types that cater to specific groups of professionals.
  • It can be difficult and costly to choose the right type of business. This is why it is important to seek out assistance from an attorney as well as a tax professional.

When Choosing a Business type:  there are several factors to consider

These four factors are important to consider when you make a decision about starting a business or changing the type of your business.

  • Complexity and cost of running the business. This includes legal fees and costs of operation.
  • ownership control and the compromise between control and profits/losses
  • How the owner or business pays taxes and the tax rates applicable to the business
  • Liability for business owners for the business’s debt, for actions by other owners, and for general liability

Also read: What is the Right SaaS for Startup Business Structure, AI and IoT?

The Basic Types of Business Organizations

Taxes are an important factor in choosing a business. Here’s a breakdown of the two main business types that can be used for income tax purposes.


A corporation is a separate business from its owners (called shareholders) who purchase shares of stock in the company. These owners receive taxable dividends from the business. Owners may also be employees or executives. They are paid for their duties in addition to the shareholder dividends.

Pass-Through Businesses

Pass-through businesses are called such because the tax liability for the business is passed on to the owner in part of their personal tax return. If a sole proprietor earns $25,000 per year according to their Schedule C, this amount is added to the income of their spouse (if any) and any personal tax credits to determine the individual’s total tax liability.

Pass-through entities include sole proprietorships, partnerships, and limited liability companies (LLCs) as well as special types of corporations like S corporations.

S corporation owners cannot be considered self-employed. When you are assessing your tax situation for any of these types of business, it is important to include self-employment taxes.

There are many business types in States.

Limited liability companies (LLCs), partnerships, corporations, and partnerships must register in the state where they intend to do business. Each state’s corporation office or business division sets the requirements and rules for business structures. Although all states permit corporations, partnerships, LLCs, some variations of these business types may not be allowed in every state.

For more information about the registration process, contact your secretary of state, often the business division.

Sole Proprietorships (Sole Props)

A sole proprietorship refers to a business that is owned and operated by one person. The business isn’t considered separate from its owner, and it doesn’t need to be registered with a state. There are pros and cons to this feature.

The sole proprietor is the winner. He or she has complete ownership rights and does not have to answer to any board of directors. The owner also receives all profits from the business. The taxes are simple and include a Schedule A form that is included in the owner’s personal tax return.

The con is that the owner will be responsible for all losses. This means the owner could be held personally responsible for any business debts, including those incurred in bankruptcy proceedings, as well as for general liability.

One-person businesses might be a good option to start a new business before moving on to a more formal one.

Corporations (C Corps)

For operations, taxes, and liability purposes, an incorporated business is distinct from its owners. The articles of incorporation are required to form the corporation. It is expensive to form corporations because they require a board, regular meetings, records of corporate activities, and reports to shareholders.

The corporation pays its taxes, and the owners pay taxes on dividends. In some cases, this may be double-taxation.

Incorporating has two benefits: the generally low corporate taxes and the ease with which investors can raise funds.

Professional Corporations (PCs), and Professional Service Corporations (PSCs).

Two types of corporations have been created for professionals who practice alongside other professionals.

A professional organization is a type of corporation that can be used by licensed professionals like lawyers, doctors, architects, accountants, and others. In some states, these professionals may form a corporation with the same liability protection as a corporation. However, in these business types, professionals can form a corporation in certain states with the liability protection of a corporation.

Personal service corporations (PSC) are limited to providing personal services. The IRS requires that the PSC meet certain requirements, including ownership of shares and services provided by owners-employees. A broad range of professions can be considered a PSC.

S Corporations (S Corps)

A subchapter S Corporation or S Corp is a company that has the limited liability advantages of a corporation, but is taxed like a partnership as a pass-through entity.S corporation owners don’t have to pay double tax on their income. However, there are restrictions on how S corporations can be elected, such as a limit on 100 shareholders and one stock class.

S corporations have to file a federal return and have separate schedules detailing the tax due from their owners. Some states also tax S corporations.

S corporations are similar to corporations. However, they must have a board of directors and follow the same filing and operating procedures as corporations.

Also read: 6 Ideas You Need To Start Your Own SaaS Business

Limited Liability Companies (LLCs)

The formation of an LLC is possible in all states. To do this, you must register articles or similar documents with the state. You also need to create an operating agreement that governs member decisions. This includes how they share the profits and losses. An LLC owner is called a member. A single member of an LLC is called a ” single-member LLC”.

Although LLCs are more difficult to create than corporations, they offer the same protection from liabilities as corporations.

A benefit of forming an LLC? There are many options for taxation. These can vary depending on the specific situation, as shown below.

  • A single-member LLC pays taxes (using Schedule C, as a sole proprietorship).
  • Multiple-member LLCs usually pay taxes like a partnership.
  • Both types of LLCs have the option to be taxed as a corporation, or an S corporation.


A partnership is a group of people who share the benefits and risks of the business. This includes the profits and losses. It is easy to form a partnership and manage it. They need to register with the state and create a partnership arrangement. While they have some requirements for recordkeeping, they are not as complex as those of corporations.

Two types of partners can be included in a partnership:

  • General partners are those who take part in the day-to-day management of the business. They have responsibility for the partnership’s debts as well as for the actions of the partnership.
  • Limited partners are investors who don’t participate in the day-to-day operations or in any liability.

Partnerships file an information return to the IRS to report their business tax liability. Because of the pass-through status of the partners, no tax is charged on this form. Instead, income and loss are divided among the partners in accordance with their agreements. Each partner then receives an amount. Schedule K-1 Form showing their share of the year. This is reported on their personal tax returns.

Partner Options

There are many types of partnerships available, depending on how much liability each partner wants to take and what type of group is involved in the business.

General partnerships include general partners who make business decisions. However, each partner is liable for any debts or decisions made by other partners.

A limited partnership, sometimes called an “LP”, has both general partners that participate in business decisions and a limited partner who invests in the business but not in its daily operations. Limited partners can be held liable for actions and debts of the company, while general partners are liable. However, limited partners are protected from such liability as long they do not become involved in daily operations.

Although limited liability partnerships (LLPs are formed with general partners, all general partners are protected from liability for the actions of employees and other general partners. The LLP operates in the same way as an LLC but is subject to partnership rules.

Multi-owner businesses or groups of professionals such as a law firm or CPA company may use one of the following partnership types.

Written by
Barrett S

Barrett S is Sr. content manager of The Tech Trend. He is interested in the ways in which tech innovations can and will affect daily life. He loved to read books, magazines and music.

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