The core business structures in the USA, Sole Proprietor, Partnership, LLC (includes partnerships,) S-Corp, and C-Corp, describe the legal and organizational framework under which a business operates. It also determines how the business is taxed and determines the extent of personal liabilities that extend to stakeholders in the case of business debts, legal claims, and third-party damages. Their comparison can help in making the right business structure decision.
Simple Core Business Structures
A sole proprietorship is the simplest and most common form of business ownership. It is an unincorporated business owned and operated by a single individual, with no legal distinction between the owner and the business itself. No filing is required by the business. Instead, the owner is taxed on the profits and liabilities of the business. This structure is ideal for smaller business operations.
A business partnership is a legal relationship between two or more persons who carry on a business or trade together with the intention of sharing profits and losses. Each partner contributes money, property, labour, or skill, and shares in the profits and losses of the business. Partnerships file an annual information return but do not pay income tax. Instead, they “pass-through” profits or losses to their partners, who report their share on their personal tax returns. It is one of the foundational business structures and is governed primarily by state partnership statutes, common law principles, and federal tax rules under Subchapter K of the Internal Revenue Code.
Business Structures as Legal Entities
A Limited Liability Company (LLC) is a hybrid business entity that combines the liability protection of a corporation with the tax flexibility and operational simplicity of a partnership. It is governed primarily by state statutes, meaning the rules can vary slightly depending on the jurisdiction, but the core legal features are consistent nationwide.
An S Corporation (S-Corp) is a corporation that elects to pass corporate income, losses, deductions, and credits through to its shareholders for federal tax purposes. It also offers liability protection. Shareholders report the flow-through of income and losses on their personal tax returns, which are taxed at their individual income tax rates. An S-Corporation must meet specific requirements, such as having no more than 100 shareholders and only one class of stock.
A C-Corporation (C-Corp) is taxed separately from its owners. Unlike S-corporations, C-corporations do not pass their income, deductions, or losses through to shareholders for tax purposes. Instead, the corporation pays taxes on its earnings, and shareholders pay taxes on dividends they receive. This arrangement can result in double taxation—once at the corporate level and once at the shareholder level. A couple of other key features of C-Corporations are their filing of an annual corporate tax return and an applicable corporate tax rate of 21%; also, shareholders have limited liability protection, meaning they are not personally responsible for the company’s debts and liabilities.
Other Structures
Other business structures include Limited Partnership (LP,) which consists of one or more general partners who bear full liability; one or more limited partners whose liabilities are limited according to investment. This structure requires filing with the state of residency. A Limited Liability Partnership (LLP) is a structure in which all the partners have limited liability; professional firms, such as law, accounting, and consulting, fall in this category. Filing requirements vary by state. A Professional Corporation (PC or PLLC) is a structure used by regulated industries requiring malpractice protection, such as doctors, architects, and lawyers. They can elect S-Corp or C-Corp status. A Nonprofit Corporation is organized for charitable, educational, religious, or scientific purposes. It is required to file with the resident state and the IRS. It can apply for 501(c)(3) tax-exempt status. A Benefit Corporation (B-Corp) is a structure that has a social mission but is for profit. It is taxed as a C-Corp. And finally, Cooperative (Co-op) structure is owned and operated by members for mutual benefit, such as credit unions, housing co-ops, &c.
Conclusions
As a comparison of the core business structures in the USA shows, choosing the right business structure is one of the most consequential decisions a prospective business owner will make. It shapes not only how the business is taxed, but also how it is governed, how liability is managed, how capital is raised, and how the enterprise evolves. At a high level, the decision hinges on aligning the structure with the owner’s strategic goals, risk tolerance, operational complexity, and long-term vision.
By Richard Thomas
