10 Types of Businesses & How To Choose The Right One In 2025

Entrepreneurs have endless business possibilities. Whether you want to start an online store or launch a service-based venture, choosing the proper business type for you is an important decision. Your final choice can affect everything from your liability to how much you pay in taxes.

Surprisingly, many new entrepreneurs overlook this step while focusing on branding, marketing, and product development. While this isn’t wrong, your chosen business structure creates the foundation for your company’s legal and financial future.

Each business type has different rules, responsibilities, and benefits. Keep reading to learn how they compare and which one best fits your plan.

Choosing a Business Structure: What You Need To Know

Every business structure affects how decisions are made, how much personal risk is carried, and how money flows through the business. Some setups work better for solo founders, while others give flexibility for teams or outside investors.

Tax implications also vary dramatically between different types of businesses, with operational differences affecting everything from decision-making processes to company activities.

The structure you choose will influence how investors perceive your business entity, your ability to attract the right employees, and how easily you can sell the business or transfer ownership when the time comes.

Understanding these trade-offs early can help you avoid costly changes down the road.

The 10 Types of Business Structures To Consider In 2025

When launching a business, choosing the proper type of business should be at the top of your small business checklist. Each option has advantages, drawbacks, and implications for taxes, liability, and operations.

Here are 10 types of business structures to consider, with a breakdown of how each one works.

10. Limited Liability Company (LLC)

Limited liability companies (LLCs) have become one of the most popular business types for small to medium-sized businesses, and for good reason. LLCs combine the protection of a corporation with the tax benefits and flexibility of a partnership.

As a limited liability company owner (known as a member), you can protect your personal income and assets from business debts and liabilities. Unlike corporations, LLCs avoid double taxation – profits pass through to members’ tax returns.

LLCs also offer tremendous flexibility in management structure and profit distribution. You can run your limited liability company like a sole proprietorship (single-member LLC) or set up a management team similar to a corporation.

Despite a limited liability company requiring more paperwork and expenses upfront than if you were to go down the sole proprietorship route, it’s far less complex than forming a corporation.

It’s worth remembering that you have to maintain certain formalities to preserve your liability. These requirements include keeping the business entity and personal income separate, holding meetings, and maintaining records. In some states, LLCs have limited lifespans, so if a member leaves, you may need to dissolve the company.

9. C Corporation

A C corporation (C corp) is a separate legal entity from its owners or shareholders. This separation provides substantial protection for shareholders as they are not held personally responsible for the company’s debts or legal issues.

A C corp can have unlimited shareholders and issue different classes of stock, making it ideal for businesses planning significant growth or seeking venture capital funding. C corps also offer employees various tax-deductible benefits. Most large companies, including Apple and Coca-Cola, are C corporations.

The most significant disadvantage is that C corporations pay income tax twice. First, corporate income tax is paid on a business’s profits. Then, when earnings are distributed to shareholders as dividends, the shareholders pay income tax on those dividends.

C corps also face more regulatory requirements and paperwork than other business structures, including formal shareholder and director meetings, detailed record-keeping, and complex tax filings.

8. S Corporation

An S corporation (S corp) combines a C corporation’s liability protection with a partnership’s taxation. Tax is paid through a pass-through tax status, meaning the business doesn’t pay federal government taxes. Instead, profits and losses are passed through to the shareholders’ personal tax returns.

S corps can save owners money on self-employment taxes, as founders must pay themselves a “reasonable salary” subject to employment taxes. You can take additional profits as distributions, which aren’t subject to the same taxes. S corps are an attractive business structure for profitable small to medium-sized businesses.

S corps do come with some restrictions, though. For example, they must have no more than 100 shareholders who must be U.S. citizens or residents. Running an S corporation means having regular, formal meetings, maintaining detailed records, and having separate tax filings.

The Internal Revenue Service (IRS) closely scrutinizes S corporations to ensure owners pay themselves reasonable salaries and do not just take distributions to avoid taxes.

Read more: Best home-based business ideas for moms.

7. Limited Liability Partnership (LLP)

Limited liability partnerships have an advantage over general partnerships as all partners receive some liability protection. In a limited liability partnership, partners are not held personally responsible for the negligence or misconduct of other partners or the partnership’s debts, though they remain liable for their actions.

LLPs are usually the business structure of choice for attorneys, accountants, architects, and medical professionals. They allow specialists to work together while maintaining individual protection.

Like other partnerships, LLPs benefit from pass-through taxation, meaning the business doesn’t pay taxes. Profits pass through to the partners, who must report them on their personal tax returns.

LLP regulations vary by state. One disadvantage is that they incur higher formation and maintenance costs compared to a simple partnership and have restrictions on who can form one.

6. Benefit Corporation

Benefit corporations, or B corps, are a relatively new type of business. While traditional corporations primarily focus on maximizing shareholder value, B corps commit to creating sustainable value benefits in addition to profits.

Benefit corporations enjoy the same protections as C corporations while having the legal protection to pursue social and environmental goals, even if that means reducing profits.

Examples of businesses with B corp status include Patagonia, Kickstarter, and King Arthur Flour, and their primary focus is sustainability. If you consider yourself a social entrepreneur, then B-corporation status is something to aspire to.

B corporations must produce annual benefit reports that assess their social and environmental performance against third-party standards. They may also face challenges from traditional investors who prioritize financial returns over social impact.

5. Nonprofit Corporation

Nonprofit organizations serve the public rather than generate profits for owners or shareholders. They can qualify for tax-exempt status if they serve religious, charitable, scientific, literary, or educational purposes.

The main advantage of a nonprofit organization is its tax-exempt status. A nonprofit doesn’t pay state or federal income taxes on related business revenue.

Nonprofits can also receive tax-deductible contributions, can apply for grants, and may qualify for special postage rates, among other benefits. Like for-profit corporations, nonprofits protect their directors and officers from personal liability.

Nonprofits must maintain detailed records, file annual reports, and follow strict fund-use rules. Profits must also be reinvested in the organization. To start a nonprofit, you must demonstrate the business’s charitable or public purpose.

4. Cooperative

A cooperative is a business owned and democratically controlled by its members, who use its services and share in its benefits. Members contribute equitably to the cooperative’s capital and typically have equal voting rights, regardless of how much they’ve invested.

Cooperatives excel at serving the needs of their members rather than maximizing profits. They build communities, create sustainable jobs, and often focus on fair trade and environmental sustainability. Successful cooperatives exist in many industries, including agriculture, retail, financial services, and housing.

The democratic nature of cooperatives can make decision-making slower and more complex than in other business structures. Raising capital can also be challenging since cooperatives generally can’t issue shares to outside investors.

Additionally, cooperative members may have differing priorities and interests, which could lead to conflicts about the organization’s direction.

3. Limited Partnership (LP)

A limited partnership provides a middle ground between general and more formal business structures. It consists of at least one general partner who manages and conducts business and bears liability, and one or more limited partners who are typically investors with limited involvement in day-to-day business activities.

The appeal of limited partnerships lies in their ability to raise investment capital. Limited partners can invest in the business entity while restricting their liability to the amount invested. This setup appeals to ventures that need funding without giving up control, such as real estate projects, family-run businesses, or online stores backed by passive investors.

However, limited partnerships are more complex and have higher formation costs than general partnerships. General partners still face liability for business debts and legal issues. Additionally, limited partners must be careful not to become too involved in day-to-day operations, as they could inadvertently lose their limited liability status by appearing to function as general partners.

2. General Partnership

A general partnership forms when two or more people agree to join a business and become general partners. Similar to sole proprietorships, general partnerships are relatively easy to establish and don’t require formal registration with the state (though you’ll still need business licenses and permits).

In a general partnership, profits, management responsibilities, and liabilities are shared among the partners based on the terms of their partnership agreement. This structure offers multiple perspectives, skills, and resources, making it popular for small businesses and professional services such as law firms, medical practices, and consulting agencies.

All general partners are personally liable for business debts and legal obligations. Even worse, each partner can be held responsible for business decisions made by the other partners, even without their knowledge or consent. Partnerships also face the challenge of potential conflicts between associates and complications if one counterpart wants to leave the business.

1. Sole Proprietorship

A sole proprietorship is the simplest business structure and the default choice for many first-time entrepreneurs. It is an unincorporated business that lacks a formal legal structure and doesn’t exist as a separate entity from its owner(s). Under this arrangement, there’s no legal separation between you and your business; you are the business and have complete control.

Setting up a sole proprietorship requires minimal paperwork and expense. In most cases, you’ll need to register your business name and obtain any necessary licenses or permits. The simplicity of setting up as a sole proprietor makes it an attractive option for those who want to become freelancers, consultants, and small business owners.

However, the main drawbacks are the business and financial liability. Since there’s no legal distinction between you and your business, you are personally liable for all business debts and legal issues. This structure means creditors can come after your personal assets, including your home, car, and savings.

Despite this, sole proprietorship is an excellent choice for anyone who works alone in the business. So, if you are considering life as a freelancer, such as becoming a virtual assistant, this would be the business type for you.

Ready to get your business online? Create a website with Friday. 

Why Does The Type Of Business Matter?

Just as there are different types of entrepreneurs, there are various types of businesses. Your business structure affects virtually every aspect of your company’s operations, from day-to-day decisions to long-term strategy. Here are several key reasons this choice matters:

Liability

Different business structures have varying levels of personal liability. Sole proprietorships and general partnerships do not separate personal and business assets, meaning your house, car, and savings could be at risk if your business faces debts or lawsuits. Corporations and limited liability companies create a legal separation that generally protects personal assets.

Taxation

Sole proprietorships, partnerships, limited liability companies, and S corporations are typically “pass-through entities,” meaning the business doesn’t pay taxes. Instead, profits pass through to the owners’ income, which they declare on their tax returns.

C corporations face double taxation: the corporation pays taxes on its profits, and then shareholders pay taxes on their dividends. Nonprofits can qualify for a tax status that exempts them from paying taxes.

Paperwork and Compliance

More complex business structures come with additional regulatory requirements. Corporations must hold regular meetings, maintain detailed records, and file separate tax returns. Limited liability companies have fewer requirements but still need to keep certain formalities. Sole proprietorships have minimal compliance burdens.

Ability to Raise Capital

The type of business can significantly impact your ability to attract investors or obtain financing. Corporations can sell stock to raise funds, while partnerships and limited liability companies can bring in new partners or members. Sole proprietorships often struggle to raise significant capital beyond bank loans or personal funds.

How To Choose The Right Business Structure For You

Selecting the right type of business structure requires carefully considering your unique circumstances and objectives. Here’s a straightforward approach to making this crucial decision:

• Assess Your Risk Tolerance: Consider how much personal liability you’re comfortable assuming. If protecting your individual assets is a top priority, a limited liability company or corporation might be best. A sole proprietorship might be sufficient if you’re starting a low-risk business with minimal potential for lawsuits or debt.
• Evaluate Your Tax Situation: Consult with a tax professional to understand how different business structures would affect your tax burden. Consider current taxes and long-term tax strategies. For example, if you plan to reinvest most profits into the business, a C corporation’s tax rates might be advantageous. A pass-through entity, like a limited liability company, might be better if you intend to take most profits out as income.
• Consider Your Growth Plans: Where do you see your business in five or ten years? A C corp provides the necessary framework if you plan to seek outside investment, scale your business, or eventually go public. If you envision staying small and independent, an LLC or S corp might offer a better balance of benefits and simplicity.
• Count Your Partners: How many people will own the business, and what will their roles be? A single-member limited liability company or sole proprietorship might make sense if you go solo. A partnership or multi-member LLC could work well if you have multiple active owners with roughly equal roles. A limited partnership or corporation might be more appropriate if some owners are passive investors.
• Budget for Setup and Maintenance: Different types of businesses have varying setup costs and ongoing compliance expenses. Sole proprietorships cost little to establish, while corporations require more substantial legal and filing fees. Consider whether the benefits of a more complex structure justify the additional expense for your particular business.
• Factor in Your Industry: Your type of business determines the structure. Due to liability concerns, professional service providers like doctors and lawyers often form professional corporations or LLPs.
• Consider Your Exit Strategy: How you plan to leave or sell your business eventually can influence your structure choice. Corporations make ownership transfer relatively straightforward through stock sales, while partnerships and sole proprietorships can be more complicated to transfer or dissolve.

As your company grows and evolves, you can change to a different structure that better suits your needs. However, restructuring can involve significant paperwork and potential tax implications, so it’s worth making a thoughtful initial choice.

Summary

Choosing the right type of business structure is a foundational decision that shapes your company’s legal standing, tax obligations, and operational flexibility. Each type offers unique advantages and limitations that should align with your business goals and personal circumstances.

Remember that your business’s structure might also change as it evolves. What works for a startup may not be ideal for a mature company. Consult with legal and tax professionals to make an informed decision that will save you time, money, and stress as you scale.

With the proper foundation, you’ll be well-positioned to turn your entrepreneurial vision into a thriving business.