A business’s legal structure affects personal liability, tax treatment, ownership flexibility, and how easily a company can grow. As of 2024, there were over 34 million small businesses operating in the US, all with varying structures. Choosing the right business structure can reduce risk, simplify taxes, and prevent expensive changes later. Choosing the wrong structure can limit what a business can do.

Below, we’ll explain how different types of company structures in the US work and how to choose the structure that fits your business goals, risk profile, and plans for growth.

What’s in this article?

• What is a business structure?
  
• Why does the company structure matter?
  
• What are the different types of company structures?
  
• What is a sole proprietorship?
  
• What kinds of partnerships exist?
  
• What is a limited liability company (LLC)?
  
• What are the different types of corporations?
  
• How do you choose the right business structure?
  
• How Stripe Atlas can help
  

What is a business structure?

A business structure is a legal framework that defines how the business exists in the eyes of the law, who’s responsible for what, how money flows through the company, and how decisions get made.

Why does the company structure matter?

The right business structure can help support your goals and ownership plans. It controls four things that matter both immediately and long-term:

• Liability: Whether business risks stop at the company or flow straight to you personally. Some structures protect your personal assets if the business runs into trouble; others don’t.

• Taxes: How profits are taxed, when they’re taxed, and at what level. This can affect cash flow more than founders might expect.

• Ownership and control: Who owns the business, how ownership can change, and who has the authority to make decisions.

• Growth options: Whether the business can easily take on investors, issue equity, survive ownership changes, or operate across borders.

What are the different types of company structures?

Businesses typically fall into a familiar set of legal structures, though the names and rules vary by country. Each structure represents a different balance of risk, control, taxes, and long-term flexibility.

Here are common types of business structures in the US:

• Sole proprietorship: The business and the owner are legally the same. This structure is simple to start and run, but it leaves the owner personally responsible for all debts and liabilities.

• Partnership: Two or more people own the business together, sharing profits and responsibilities. The exact balance of control and liability depends on the specific type of partnership.

• Limited liability company (LLC): The business is separate from its owners for liability purposes, but profits typically pass through to owners’ personal taxes.

• Corporation: The business exists independently from its owners for liability purposes but has stricter compliance requirements. This structure is most suitable for outside investment and long-term continuity.

Other structures (e.g., limited partnerships, limited liability partnerships, S corporations, or benefit corporations) modify one of the above business forms to meet specific tax, ownership, or regulatory needs.

What is a sole proprietorship?

A sole proprietorship is the easiest way to start a business. In many cases, it happens by default. If you start operating on your own and don’t formally set up another structure, you are probably a sole proprietorship. Some simple ongoing compliance and registration might be required, including basic local licenses.

Here’s what you need to know about this solo business structure:

Liability

The business and the owner are the same legal entity, which means there’s no distinction between business assets and personal assets. The owner is personally responsible for all debts, obligations, and legal claims against the business, including those that exceed the business’s assets.

Taxes

Business income is reported directly on the owner’s personal tax return and taxed at individual income tax rates. Because the business isn’t a separate entity, the owner is responsible for paying self-employment taxes on net earnings.

Ownership and control

The owner makes all decisions and keeps all profits, without needing approval from partners, boards, or shareholders. The business is legally tied to the owner and typically ends if the owner stops operating, becomes incapacitated, or dies.

Growth options

Sole proprietorships can’t issue equity, and lenders may be cautious because repayment depends entirely on the owner’s personal finances.

What kinds of partnerships exist?

A partnership is the default structure when two or more people go into business together without forming another legal entity. Partnerships can adapt quickly because they have fewer formalities than corporations, but that flexibility can create ambiguity without clear agreements. A written agreement (even when not legally required) should define ownership percentages, profit distribution, decision-making authority, dispute resolution, and exit terms.

Here’s how the three main types of partnerships allow multiple owners to share profits and responsibilities:

Partnership

A partnership is owned by two or more people who contribute money, labor, expertise, or assets and share in the business’s profits and losses. All partners participate in running the business and are personally responsible for the partnership’s debts and legal obligations, including liabilities created by other partners. Each general partner’s personal assets can be used to satisfy business debts, which makes trust between partners critical. The partnership itself typically doesn’t pay income tax; instead, profits and losses flow through to the partners’ personal tax returns based on their agreed shares.

Limited partnership (LP)

This structure separates partners into general partners, who manage the business and carry full liability, and limited partners, who contribute capital but have liability limited to their investment. Limited partners usually don’t participate in day-to-day management, and stepping beyond that role can jeopardize their liability protection.

Limited liability partnership (LLP)

An LLP limits each partner’s exposure to liabilities arising from other partners’ actions, while often preserving shared management rights. LLPs are commonly used by professional services firms where partners want protection from one another’s mistakes without giving up joint ownership.

What is a limited liability company (LLC)?

A limited liability company is designed to protect owners from personal liability while keeping taxes and operations relatively straightforward. An operating agreement sets the rules for decision-making, profit distribution, ownership changes, and exits, and can be tailored more freely than corporate bylaws.

Here’s how LLCs work:

Liability

An LLC is its own legal entity, which means the business can take on debt, sign contracts, and be sued without automatically putting the owners’ personal assets at risk. Owners, called members, are generally not personally responsible for the company’s debts or legal obligations beyond what they’ve invested, unless they personally guarantee a loan or engage in misconduct.

Taxes

LLCs typically don’t pay income tax at the company level; instead, profits and losses pass through to the members’ personal tax returns, avoiding corporate-level taxation. Profits don’t have to be split strictly by ownership percentage if the operating agreement allows for different economic arrangements. But an LLC can elect to be taxed as a C corporation or an S corporation if that produces better tax outcomes, without changing its legal form.

Ownership and control

An LLC can have one owner or many, and members can be individuals, companies, or other entities, with few restrictions compared with corporations. LLCs can be member-managed, where owners run day-to-day operations, or manager-managed, where management authority is delegated, making it easier to scale complexity.

Growth options

LLCs usually aren’t required to hold formal board meetings or keep extensive corporate records, which reduces administrative overhead. Compared with sole proprietorships and general partnerships, LLCs often signal greater legitimacy to banks, partners, and customers while remaining easier to operate than corporations.

What are the different types of corporations?

A corporation can own assets, incur liabilities, enter contracts, and continue operating regardless of any change in leadership. Unlike many partnerships or sole proprietorships, a corporation doesn’t dissolve when an owner exits or dies. This makes it well-suited for long-term businesses.

Corporations are governed by a board of directors and officers, which creates clear lines between ownership, oversight, and day-to-day management. Shareholders generally aren’t personally responsible for the company’s debts or legal obligations beyond the amount they’ve invested.

Corporations must maintain bylaws, hold board and shareholder meetings, keep detailed records, and file regular reports, increasing administrative responsibility.

There are two main types of corporations:

C corporation

This is the default corporate form in the US. It’s taxed as its own entity, with profits taxed at the corporate level and again if distributed to shareholders. There are no limits on the number or type of shareholders. C corporations can issue multiple classes of stock, which makes them the standard choice for businesses that plan to raise venture capital or operate internationally.

S corporation

An S corp that elects pass-through taxation allows profits to be taxed at the shareholder level instead of the corporate level. It’s subject to strict limits on ownership and shareholder eligibility. S corporations cap the number of shareholders at 100, restrict ownership to certain individuals, and allow only one class of stock, which limits flexibility.

How do you choose the right business structure?

The right business structure should fit how your business operates, goals, and plans for growth.

Consider the following:

• Personal risk exposure: If your business carries meaningful financial, legal, or other risk, structures that separate you from the business (such as LLCs or corporations) can protect your personal assets.

• Tax treatment: Different structures change how and when income is taxed, whether profits are taxed once or twice, and how losses can be used, all of which affect cash flow.

• Ownership plans: The number of owners, how ownership might change over time, and whether ownership needs to be transferable all influence which structures make sense.

• Capital needs: Businesses that plan to raise outside investment, issue equity, or scale quickly often need a structure that investors are familiar with and comfortable backing.

• Management style: Some structures concentrate control in one person, while others formalize decision-making through partners, managers, or boards, shaping how the business actually runs.

• Administrative capacity: More protective and scalable structures come with more compliance, reporting, and governance requirements, which require time and discipline to maintain.

• Geographic footprint: Operating across states or countries can affect which structures are available, how they’re taxed, and how easily they can expand.

• Future flexibility: While structures can be changed later, doing so can involve legal and tax consequences, so it helps to choose one that won’t block your next phase of growth.

Seek professional guidance if you need it. Legal and tax advisors can help point out edge cases and jurisdiction-specific rules that could come into play.

How Stripe Atlas can help

Stripe Atlas sets up your company’s legal foundations so you can fundraise, open a bank account, and accept payments within two business days from anywhere in the world.

Join 75K+ companies incorporated using Atlas, including startups backed by top investors like Y Combinator, a16z, and General Catalyst.

Applying to Atlas

Applying to form a company with Atlas takes less than 10 minutes. You’ll choose your company structure, instantly confirm whether your company name is available, and add up to four cofounders. You’ll also decide how to split equity, reserve a pool of equity for future investors and employees, appoint officers, and then e-sign all your documents. Any cofounders will receive emails inviting them to e-sign their documents, too.

Accepting payments and banking before your EIN arrives

After forming your company, Atlas files for your EIN. Founders with a US Social Security number, address, and cell phone number are eligible for IRS expedited processing, while others will receive standard processing, which can take a little longer. Additionally, Atlas enables pre-EIN payments and banking, so you can start accepting payments and making transactions before your EIN arrives.

Cashless founder stock purchase

Founders can purchase initial shares using their intellectual property (e.g., copyrights or patents) instead of cash, with proof of purchase stored in your Atlas Dashboard. Your IP must be valued at $100 or less to use this feature; if you own IP above that value, consult a lawyer before proceeding.

Automatic 83(b) tax election filing

Founders can file an 83(b) tax election to reduce personal income taxes. Atlas will file it for you—whether you are a US or non-US founder—with USPS Certified Mail and tracking. You’ll receive a signed 83(b) election and proof of filing directly in the Stripe Dashboard.

World-class company legal documents

Atlas provides all the legal documents you need to start running your company. Atlas C corp documents are built in collaboration with Cooley, one of the world’s leading venture capital law firms. These documents are designed to help you fundraise immediately and ensure your company is legally protected, covering aspects like ownership structure, equity distribution, and tax compliance.

A free year of Stripe Payments, plus $50K in partner credits and discounts

Atlas collaborates with top-tier partners to give founders exclusive discounts and credits. These include discounts on essential tools for engineering, tax, finance, compliance, and operations from industry leaders like AWS, Carta, and Perplexity. We also provide you with your required Delaware registered agent for free in your first year. Plus, as an Atlas user, you’ll access additional Stripe benefits, including up to a year of free payment processing for up to $100K in payments volume.

Learn more about how Atlas can help you set up your new business quickly and easily, and get started today.