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How should I structure my small business?

The list of things that small business owners need to do to get their business off the ground is long. One of the key issues you'll need to address is how best to structure your business.

Generally speaking, there are four ways for-profit businesses may opt to use to organize their business. These options are a sole proprietorship, partnership, limited liability company (LLC) or corporation.

There are different advantages and costs to each of these structures. Here's what you need to know to help you make the right choice for your business.

Sole proprietorship

A sole proprietorship is the simplest way to structure your business. As a sole proprietor, you'll be the single owner of the business.

The big concern when establishing a sole proprietorship is your liability. Legally, there's no distinction between your personal assets and your business assets. If your business incurs debt or is liable in a lawsuit, your personal assets may be at risk.


A partnership functions similarly to a sole proprietorship. The only difference is that instead of there being one owner, there are multiple owners. Much like a sole proprietorship, liability for the partners can be an issue. All partners will be personally liable if the business is sued or debts aren't paid off.

Limited Liability Company

To resolve liability concerns associated with sole proprietorships and partnerships, you may opt to create an LLC. Setting up as an LLC allows you to protect your personal assets when it comes to legal and financial issues associated with your business.

Establishing an LLC can be both time consuming and expensive. You'll want to weigh these costs and compare them to the benefits of being protected personally from liability when making your decision.


Corporations have some similarities to LLCs but they're generally more complex and offer less flexibility. Corporations, like LLCs, allow business owners to shield their personal assets from liabilities associated with the business.

Having your business organized as a corporation allows you to issue shares of your company. This can be a valuable tool for generating new capital or for attracting/retaining quality employees.

There are a host of legal issues that can arise when starting a business that you need to be prepared for. Identifying the best structure for your small business is the first step in helping you be better positioned for long-term success.

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