What are the Types of Business Structures?

Before you launch a small business, two questions you should consider are: What are the types of business structures, and which one best fits my needs? The main types of business structures in the United States are: sole proprietorship, partnership, corporation, and limited liability company (LLC). Here we’ll discuss the various types of legal business structure in depth and how they differ in terms of liability and tax implications.

  • Sole Proprietorship. A sole proprietorship is the simplest type of business structure, and it may make sense if you don’t plan to have partners or employees.
  • Partnership. This is a legal structure designed for two or more people who go into business together as equals, or partners (not employees).
  • Corporation. A corporation is the most complex business structure and operates as a separate legal entity from its owners.
  • Limited Liability Company (LLC). An LLC is a hybrid structure that can be formed as a partnership or a corporation.

The Types of Legal Business Structure, Explained

Read on for an overview of the options for structuring your business. Of course, it’s still important to discuss the pros and cons of each — and which best suits your company — with a knowledgeable small business lawyer. Rebekah Lusk and her associates at Lusk Law, LLC have years of experience helping their Maryland clients navigate the complexities of county, state, and federal law, and we pride ourselves on our stellar track record of helping businesses set up their structure. To schedule a consultation, call (443) 535-9715.

Sole Proprietorship

Of all the types of business structure in the United States, the least complex — and most common — is a sole proprietorship. This may be a good option for you if you will be operating your company on your own, without any partners or employees. Home-based businesses, consultants, and retail businesses often operate as sole proprietorships. It’s also a good option for people who want to do a sort of trial run for their idea before launching their company on a larger scale. As a sole proprietor, you have complete control over your business, and you can pay business-related taxes as an individual. On the other hand, you assume all risk. You are personally liable for business debts and damage.


For two or more people going into business together, a partnership is the most basic way to structure their company. Each partner contributes to the business and shares in the profits or losses. A partner is not an employee. In Maryland, there are three types of partnerships:

  • General Partnership. In a general partnership, each partner is an equal player. They co-manage the business and share assets, profits, and liabilities, both legal and financial. So if the business is sued, all of the partners’ assets are at stake.
  • Limited Partnership (LP). In a limited partnership, one general partner assumes unlimited liability, while one or more additional partners have limited liability. The partners with limited liability will generally have less control over the company.
  • Limited Liability Partnership (LLP). In a limited liability partnership, every owner has limited liability. The partners’ personal assets are protected in case of a lawsuit, and partners are not held responsible for the actions of their co-owners.


A corporation is the most complicated type of legal business structure. A corporation and its owners are separate legal entities, so as the owner you are not personally liable for the business’s debts or actions. An S corporation is a special type of corporation in which income and losses may be passed to shareholders without being subject to corporate tax rates. This prevents double taxation.

Limited Liability Company (LLC)

An LLC is a hybrid structure, in that it provides corporate protection, but can be taxed as a partnership or corporation. Owners, or members, are protected from liability as in a corporation, but LLCs can be managed like a partnership.  If the owners elect to be taxed as a partnership, profits and losses are passed down to members, bypassing corporate taxation.  Certain types of companies, like insurance companies and banks, are prohibited from setting up as LLCs.

What are the four types of business structures in greater detail? To learn more, visit the IRS and Small Business Administration (SBA) pages on business structures. These valuable resources offer lots of helpful information and include links to other sites for business owners.

Why do the Business Structures Matter?

We’ve discussed the various types of businesses in some detail, but you may be wondering how this decision will ultimately matter to your company. Choosing the right structure is vitally important for several reasons.

  • It determines whether you are or are not personally liable for debts incurred and harm to people or property by your company.
  • It determines how you pay your taxes and whether you’re subject to a personal or corporate rate.
  • It determines what paperwork you’re required to file.

To Discuss the Different Types of Business Structures, Call Rebekah Lusk

You have the passion, drive, and are ready to put in the hard work it takes to get a business off the ground. These qualities will go a long way, but they’re not enough. You need an equally passionate and driven small business lawyer to ensure your company gets off to a strong start and to advise you through the legal and financial issues you will face.

One of your first tasks in setting up your business is to choose the structure that makes the most sense for your company. If you find you have to change it down the road, you may run into restrictions, tax implications, and other consequences.

Rebekah Lusk is not only an experienced attorney with a thorough knowledge of Maryland and federal business law, she is a small business owner herself. So she understands what is at stake for you and all of the potential roadblocks and issues that may come up.

Call Lusk Law, LLC — Advocates for Life’s Obstacles and Opportunities — at (443) 535-9715 to schedule an appointment. We will not only help you choose a business structure, but we’ll make sure it’s set up in full compliance with the law.

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