As you begin thinking about starting your first company, registering an existing business officially, or beginning a new venture, you have several options to consider in terms of business structures.
Which is the best for you? Well, that depends on many factors, including the number of owners, the size of your business, the protection you want, and tax considerations.
The main types of business structures include:
This guide will walk you through the basics of each major business structure to help you decide what’s right for you. Let’s get started!
This is the default business structure. Even if you don’t formally set up a business, if you conduct business activities, you are considered a sole proprietor. Unlike most organizations below, a sole proprietorship is not a separate business entity. As with all business structures there are pros and cons of sole proprietorships but some key features include:
A partnership is a great, simple start-up option for businesses with more than one owner. Partnerships don’t have shares but can be bought into, although partnership interests are more restrictive than shares.
There are two main kinds of partnerships:
The LLC is a simple, flexible legal structure that offers many of the benefits of a partnership or a bigger corporation, but can be used by a single owner. Some of the main features of an LLC include:
There are a few different varieties of corporations, but the most essential is the basic professional corporation or C corp:
Corporation (C corp) – An entirely separate legal entity that exists completely separate from its owner(s), a C corporation offers the absolute most protection of any business structure. Some main features are:
S corporation (S corp) – An S corporation with certain restrictions that are not recognized in every state. It exists to avoid the double taxation described above. Some distinguishing features are:
Benefit corporation (B corp) – This is another special kind of corporation that’s similar to a C corp except that it’s driven not just by profit, but also by a mission of public benefit. In addition to the rigorous documentation required of all corporations, B corps must file benefit reports in some states.
Close corporation – Unlike other corporations, a close corporation has much less formal structure, can be run without a board of directors, and can’t be traded publicly in some states.
Like B corps, these structures exist for reasons beyond profit distribution. A nonprofit is technically a corporation, while a cooperative is a different structure entirely:
Nonprofit corporation – A nonprofit is unique in that it exists not to create a profit, but rather for public benefit, providing social goods like charity, education, and culture. Some unique qualities of nonprofits include:
Cooperative – A cooperative is both owned and operated for the benefit of its users (user-owners). All members, regardless of share percentage, have the same voting power.
A business owner can choose to combine elements of certain structures above, like an LLC that’s taxed as a C corp or nonprofit. These hybrid structures can be difficult to set up and manage, but, given the right circumstances, a non-standard business structure might make perfect sense for you.
No matter what kind of structure you choose to start, you’ll need to make sure you not only register your business, but also set up any licensing required in your field, get your tax documents prepared, and secure business insurance.
When you’re building your business from the ground up, every expense matters, including insurance. At Thimble we believe business insurance should be customized for your business and work for you so you can focus on growing the business.
It’s insurance for the 21st generation—on-demand, flexible, and affordable. In just 60 you can purchase general liability and/or professional liability insurance to help protect you from:
And, our coverage is custom-tailored to the specific needs of your business. You can purchase plans by the hour, day, or month, so that you’re only paying for the coverage you need. It’s insurance that works when you do.
Whatever business structure you decide on, make sure that both your business and personal assets are protected. Given the sheer amount of options at your disposal, take time to consider what business structure makes the most sense. And, should you need to change it in the future, it’s within your power to do so.
Our editorial content is intended for informational purposes only and is not written by a licensed insurance agent. Terms and conditions for rate and coverage may vary by class of business and state.
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