Starting a business is an exciting step, and one of the most important legal/tax decisions you’ll make when starting out is choosing the right business structure.

Your choice will influence everything from tax obligations and personal liability to your ability to raise capital. Let’s look at your options and find the one that’s best for you.

Factors to Consider when Deciding Between Different Business Structures

Choosing the Right Business Structure: Sole Proprietorship vs. LLC vs Corporation

  • Liability Protection: How much personal risk are you willing to take on? If you want to keep your personal assets separate and protected, then an LLC or Corporation may be the way to go.

  • Tax Implications: Different structures come with varying tax obligations. Sole proprietorships and LLCs typically offer pass-through taxation, while C-Corps are taxed separately from their owners.

  • Cost and Complexity of Formation: While sole proprietorships are relatively simple to establish, LLCs and Corporations require more paperwork and, often, higher setup and maintenance fees.

  • Flexibility in Management: Do you want complete control, or are you open to having a board of directors? This can influence whether you opt for a Sole Proprietorship, LLC, or Corporation.

  • Future Capital Needs: If you anticipate needing to raise a significant amount of capital or plan to go public in the future, a corporation might be more suitable.

Your Options:

1. Sole Proprietorship

  • What it is: A business owned and operated by one individual, where you and your business are considered the same entity.

  • Pros: Easiest and cheapest to set up; full control over your business.

  • Cons: Unlimited personal liability; difficult to raise capital.

  • Financial Aspects: Income and expenses are reported on your personal income tax return, and you're responsible for self-employment taxes.

  • Liability: There's no separation between personal and business assets, meaning personal assets can be at risk.

  • Estimated Costs: Filing costs are typically minimal, often between $25 and $50. Legal fees can range from $0 (if you do it yourself) to $500 (if using an attorney).

  1. 2. LLC (Limited Liability Company)

    • What it is: A blend offering the liability protection of a corporation with the tax benefits of a sole proprietorship or partnership.

    • Pros: Protects personal assets from business debts; offers more credibility.

    • Cons: More complex and costly to set up than sole proprietorship; additional state regulations.

    • Financial Aspects: Offers pass-through taxation, with profits and losses reported on owners' personal tax returns.

    • Liability: Members (owners) are typically shielded from personal responsibility for business debts and liabilities.

    • Estimated Costs: Filing fees range from $50 to $500 depending on the state. Legal fees can vary from $500 to $2,000 depending on complexity and location.

  2. 3. Corporation

    • What it is: A separate entity owned by shareholders.

    • Pros: Limited liability for shareholders; easier to raise capital.

    • Cons: Potentially complex and costly setup; double taxation is possible.

    • Financial Aspects: C-Corps face double taxation, while S-Corps offer pass-through taxation akin to LLCs.

    • Liability: Shareholders have limited liability, typically safeguarded from corporate debts or liabilities.

    • Estimated Costs: Filing fees typically range from $100 to $1,000. Legal fees for incorporation can range from $1,000 to $3,000+ depending on complexity.

My Entrepreneurial Journey:

Choosing the Right Business Structure: Sole Proprietorship vs. LLC vs Corporation

When I started my first small business, a contracting firm in Texas, I chose to set it up as a Texas LLC. This choice was best for me for a couple of reasons. Firstly, it allowed me to easily separate my personal and business expenses and liabilities, ensuring my personal assets remained safe. LLCs are also cheaper to set up and maintain than corporations, and are usually the best bet for small businesses with local reach.

When I started building Twine, we came to a different decision. We realized early on we needed to raise venture capital and a Delaware C-Corp became the obvious decision. A C-Corp structure not only enabled us to raise the essential capital but also ensured that both, we and our shareholders, had optimal protection.

Seeking Guidance? If you're navigating the maze of selecting a business structure and could use some expert advice, our trusted partner, The CPA Dude, is just a call away at (510) 439-0186. They've been instrumental in our journey and can quickly answer your questions and concerns.

Ready to Embark? If you're ready to move forward, I can personally vouch for RocketLawyer for LLC setups and Clerky for corporation creation. Both platforms provided a frictionless experience, and I could not recommend them both more.

Until Next Time,


Choosing the Right Business Structure: Sole Proprietorship vs. LLC vs Corporation

Growing your Business Moving Forward:

Your chosen structure will influence how your business grows and operates. As you expand and client interactions increase, managing call volumes becomes one of the biggest bottlenecks. Missed calls become missed opportunities for business.

This is where Twine steps in. Twine ensures you're equipped to handle calls effectively, making sure that growth doesn't lead to missed business opportunities.