The Pros and Cons of the 5 Common Corporate Structures

If you are looking into starting a business, you will choose a corporate structure by which to organize your business. Each one carries its own strength and weaknesses, and knowing how they work will help you decide which one will be best.


  1. Sole proprietorship. If you do business without formally creating an entire organization, you are known as a sole proprietor. There is little paperwork and you become the business. The advantages lie with how easy and inexpensive it is to organize, and the tax are simple. Some disadvantages are found in the personal liability for debt or lawsuits and self-employment tax requirements.


  1. In this structure, two or more people contribute to the business and share ownership and profits. The advantages are with the shared financial commitment and the less-formal operation and termination of business proceedings. Operations work according to the strengths and abilities of each partner. The disadvantages are seen in the liability for financial debt and legal claims, and the interpersonal problems that might arise.



  1. Corporation. In the corporate structure of an S Corp, the business is a separate legal entity filed under subchapter S of the tax Code. The corporation is liable for its own debts, but profits and losses can pass to your individual return. Advantages include tax savings, limited shareholder liability and freedom of operations. The difficulty in forming, operating or terminating the corporation, as well as strict guidelines for shareholders and stock records are often considered primary disadvantages.


  1. Limited liability Company (LLC). This structure is a hybrid of the an S Corp and sole proprietorship. Having limited lability for business debts is a major advantage, as is your ability to easily operate and determine who has earned what percentage of either profits or losses. A significant disadvantage is the requirement of self-employment taxes for both employer and employee contributions.



  1. C Corporation.Any businesses filed under subchapter C of the tax code are considered C corporations. They’re owned by a group of shareholders and managed by a board of directors. This is the most complex corporate structure. One advantage is the ability to generate revenue through the sale of stock, as well as offering competitive employee benefits. Ability to generate capital and raise funds through the sale of stock. However, they are costly to start and operate, requiring legal paperwork and additional fees.


Compare your business needs with the right corporate structure to choose which one will work best.

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