You’ve got the vision. You’ve got the idea. Maybe you even have a name and a logo. But before you launch or grow your business, there’s one decision that has long-term legal and financial consequences: your business structure.

Whether you’re a solopreneur, freelancer, or forming a new partnership, the legal entity you choose can affect your personal liability, tax obligations, and future flexibility.

Here’s what you need to know to choose the structure that protects what you’re building and keeps the IRS happy.

1. Why your business structure matters

Your business structure is more than just paperwork. It affects:

• How you’re taxed
  
• Whether your personal assets are protected
  
• How decisions are made
  
• How (and whether) you can bring on partners or investors
  
• What happens if your business is sold or dissolved

Choosing the right structure upfront can help you avoid unnecessary legal risk and financial headaches down the road.

2. Sole Proprietorship: Simple, but risky

This is the most basic option, and the default if you don’t officially form an entity.

Pros:

• Easy and inexpensive to start
  
• Total control over decisions
  
• Fewer ongoing filing requirements

Cons:

• No personal liability protection
  
• Harder to raise capital
  
• May not appear as “legit” to clients or partners

Best for: Side hustles or very early-stage businesses that are testing the waters.

3. Limited Liability Company (LLC): The popular pick

LLCs are a favorite for small businesses—and for good reason.

Pros:

• Separates personal and business liability
  
• Flexible tax treatment (you can be taxed as a sole prop, partnership, or S-Corp)
  
• Fewer formalities than a corporation
  
• Works for single-member or multi-member businesses

Cons:

• Requires annual filings and fees (varies by state)
  
• Some complexity in setting up operating agreements or adding members

Best for: Freelancers, consultants, creatives, and small businesses that want protection and flexibility.

4. S-Corporation: A tax-savvy step-up

Technically not a legal entity on its own, this is a tax election that LLCs or corporations can make.

Pros:

• Can reduce self-employment taxes
  
• Allows you to split salary and dividends
  
• Attractive to investors in some cases

Cons:

• Requires running payroll for yourself
  
• Must follow IRS rules for compensation and structure
  
• More paperwork than an LLC

Best for: Growing businesses with consistent profit that want to reduce their tax burden.

5. Corporation (C-Corp): Built for scale

Most large companies are C-Corps, but they’re not always the best fit for small businesses.

Pros:

• Unlimited shareholders
  
• Can issue multiple classes of stock
  
• Attractive for outside investment or eventual sale

Cons:

• Double taxation (profits are taxed at the corporate level and again when distributed)
  
• Complex structure and compliance requirements

Best for: Startups planning to raise capital, go public, or issue stock to employees.

6. Partnerships: Shared ownership, shared risk

If you’re starting a business with someone else, you’ll need a clear partnership structure.

Options include:

• General Partnership (GP)
  
• Limited Partnership (LP)
  
• Limited Liability Partnership (LLP)

Pros:

• Shared responsibility and resources
  
• Pass-through taxation
  
• Potentially lower costs than incorporating

Cons:

• GPs have no liability protection
  
• Disputes can get messy without clear agreements
  
• Some states limit LLPs to certain professions (like law or medicine)

Best for: Joint ventures or professional partnerships, but only with a detailed agreement in place.

7. So… which one is right for you?

The answer depends on your:
✔️ Business goals
✔️ Risk tolerance
✔️ Tax situation
✔️ Funding plans
✔️ Team structureIf you’re unsure, don’t DIY this decision. Working with a family and business attorney ensures your formation documents match your actual vision, not just a generic template.

Business formation is about more than filing a form. It’s about protecting your future, your finances, and your family.

Whether you’re starting from scratch or restructuring something that’s already grown, I can help you choose (and form) the right entity with clarity and care.

Need guidance on forming your business in Maryland or DC?
Let’s make sure your structure works as hard as you do. Contact me today!