Choosing the Best Legal Structure for Your Startup

Offer Valid: 07/11/2023 - 07/11/2025

When starting a business, one of the first things you must do is select a legal structure. This can be challenging, especially if you’re unfamiliar with the different types of structures, their benefits, and their drawbacks. Below, we break down the most popular business structures to help you decide the ideal option for your startup.


Sole Proprietorship


The simplest type of business structure is the sole proprietorship. This essentially means that you’re the sole owner and are responsible for all aspects of the business. The good news is that you don’t have to worry about complying with complex partnership or corporate laws. That said, you’re personally liable for all debts and obligations related to the business. In other words, a sole proprietorship doesn’t provide much legal or financial protection.




A partnership is a legal structure in which two or more people share ownership of the business. These can be either general partnerships or limited partnerships, depending on the specific situation. 


In a general partnership, all partners are equally liable for the business’s debts and obligations. A limited partnership means that at least one general partner is liable for the debts and obligations, while one or more limited partners are liable only for the amount they have invested in the company. Partnerships can add complications, but they can also reduce stress for the partners if managed correctly.


Limited Liability Company (LLC)


Mix a sole proprietorship or partnership with a corporation, and you get an LLC. This type of structure offers limited personal liability and tax flexibility to its owners, but you’re not required to hold annual meetings or keep minutes of meetings (unlike a corporation). 


It’s also relatively simple to form an LLC. You can establish either a single-member or multi-member LLC according to your business’s needs and goals. Starting an LLC is simple as long as you understand the state’s rules and processes. You can also have a formation service do most of the heavy lifting for you.




A corporation is a legal entity entirely separate from its owners. Corporation owners are called shareholders, who elect a board of directors to run the corporation. The board appoints officers to manage day-to-day operations. Corporations are subject to more government regulations than other entities, and they must conduct annual meetings and record the minutes of those meetings.


One type of corporation is the S corp, which yields many advantages to small businesses. For instance, you can get pass-through taxation, claim specific losses as tax deductions, and save on self-employment tax by forming an S corp. 


Registering Your New Business


Once you’ve determined the ideal legal structure, there are a few ways to make the process of registering your startup as smooth and stress-free as possible. Here’s a quick breakdown of the steps:

  • Obtain any licenses and permits required in your state and local municipality.

  • Open a business bank account.

  • Put any necessary insurance policies in place.

  • Register your business with the IRS.

  • File for the necessary taxes.


Keep in mind that securing funding for your business often involves lenders and investors reviewing your credit score, so take steps to maintain a healthy credit score to increase your chances of getting approved.


Many entrepreneurs are intimidated by the prospect of registering a business. However, while tedious, you can sail through if you remain organized.


Keeping It All Organized


No matter the type of business entity you choose, it’s essential to remain organized so that you don’t make the process more complicated than necessary. One option is to digitize all your documents and store them in the cloud; this will make it easy to sort your files and ensure you always have access to them. Take time to research the various cloud service providers, and choose a secure option that you can easily afford.


Keep in mind that depending on the nature of your business and how many other people you have involved (be it investors or team members), you may be sharing your business documents with others. PDFs are the go-to format for document sharing in the corporate world, because they can be emailed easily, read across a variety of devices, and even encrypted for security. If you have any files in Microsoft Word or Excel format, click here for more info on how to convert them to PDFs.

You have plenty of options when it comes to choosing a business structure for your startup—from a sole proprietorship to an LLC. Don’t become overwhelmed; simply consider the pros and cons of each business entity and select the best option for your company. And remember to keep your business documents organized along the way!

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