So, you’re ready to become an entrepreneur – you have an idea or a product in mind, maybe even a business plan or website, and you’re ready to make things official and actually register your business… but should you create an LLC? A corporation? An “s-corp,” whatever that is?

Below, I’m going to try to help you determine the best business structure for your new small business or startup. But before I can start making recommendations, I think we need a basic primer on the different types of business structures, how they work, and how they are taxed.

Disclaimer: I’m not a lawyer or an accountant and this is NOT legal, tax, or financial advice. Just information from a fellow entrepreneur with over 20 years of experience.

Business Structures Defined

In this article we’re going to cover the most popular business structures:

  • Sole Proprietorship
  • General Partnership
  • Limited Liability Company
  • S-Corporation
  • C-Corporation

Sole Proprietorship

You’ve probably heard of a sole proprietor or sole proprietorship – that’s the most basic kind of business entity. That’s you, right now. There’s nothing you need to DO to be a sole proprietorship – you already are one. If you drive for Uber or build someone a website or a farmhouse table on the weekends, you have to report that income to the IRS as self-employment income. Sole proprietorship revenue and expenses are reported on a Schedule C or C-EZ and the net profit flows through to your personal 1040 as self-employment income. I know that sounds kind of complicated but it’s really pretty easy, even free tax software like FreeTaxUSA.com can handle it.

Although you don’t have to do anything to register a sole proprietorship with the IRS, you may want to obtain an free EIN or Tax ID number so you don’t have to give your social security number out to vendors and/or clients. Visit the IRS website to register an EIN online. You also may have to register a DBA (doing business as) or obtain a business license from your local city or county. Check with your city/county licensing and permitting office to be sure.

General Partnership

A general partnership is very similar to a sole proprietorship but with more than one owner. You have to register as a general partnership, file a partnership agreement, and do most of the work that you would have to do with a multi-member LLC but do not get any liability protection. I have owned a general partnership and do NOT recommend it. For very little extra effort and cost you can form an LLC.

Partnerships file a tax return to report business revenue and expenses, but like a sole-proprietorship, the net profits flow through to your personal tax return, using a Schedule K-1.

Limited Liability Company (LLC)

A limited liability company or LLC is a separate legal entity that you establish through your state’s Secretary of State (or even a different state, if you prefer). But a single-member LLC works VERY similarly to a sole-proprietorship as far as the taxes go… it still files a Schedule C and profits still flow right through to your personal return as self-employment income. And a multi-member LLC is taxed very similarly to a general partnership.

There’s usually a minimal annual registration fee, and some stat