Types of Business Entities: US Business Structures Compared

Quick answer: The main types of business entities in the US are the sole proprietorship, partnership (general, limited and LLP), limited liability company (LLC), C corporation and S corporation. They differ in owner liability, how profits are taxed, paperwork and ability to raise money. Most small businesses choose a sole proprietorship or LLC, then consider an S corporation election as profits grow.

Choosing among the types of business entities is one of the first decisions a new owner makes, and it affects your taxes, your liability and even what goes on your invoices. This guide compares every common US business structure, explains how each is taxed, works through the numbers on a $100,000 profit and gives a simple decision process. If you are already trading, our free invoice generator lets you put the correct business name and tax ID on every invoice from day one.

This article is general information, not legal or tax advice. State rules and fees vary, so confirm details with your Secretary of State and a qualified professional.

Types of Business Entities Compared at a Glance

The SBA guide to choosing a business structure groups the options by liability and tax treatment. The table below summarizes the key differences.

Entity type	Owners	Personal liability	Default federal tax	State filing to form	Main tax form
Sole proprietorship	One person	Unlimited	Pass-through; self-employment tax	None (trade name if used)	Schedule C
General partnership	Two or more	Unlimited for each partner	Pass-through; self-employment tax	Usually none	Form 1065 and K-1s
Limited partnership (LP)	At least one general and one limited partner	General partner unlimited; limited partners protected	Pass-through	Yes	Form 1065
Limited liability partnership (LLP)	Two or more, often professionals	Generally limited for all partners	Pass-through	Yes	Form 1065
LLC	One or more members	Generally limited	Disregarded (one member) or partnership (two or more)	Yes	Schedule C or Form 1065, unless it elects otherwise
S corporation	Up to 100 allowable shareholders	Generally limited	Pass-through after election	Corporation or LLC, plus Form 2553	Form 1120-S
C corporation	Any number of shareholders	Generally limited	Corporate tax, then tax on dividends	Yes	Form 1120

Sole Proprietorship

A sole proprietorship is the default when one person starts doing business without forming an entity. There is no state formation filing. You may need a local business license and, if you trade under a name other than your own, a trade name or DBA (see what is a DBA).

• Liability: the owner is personally liable for business debts and obligations.
• Tax: profit goes on Schedule C of your personal return, with self-employment tax of 15.3% on net earnings of $400 or more, according to the IRS.
• Best for: side businesses, freelancers testing an idea and very low-risk services.

Partnerships: General, Limited and LLP

A partnership is two or more people doing business together for profit. The three variants differ mostly in liability.

General partnership

Formed simply by agreeing to do business together, often with no filing. Every partner has unlimited personal liability, including for business debts a partner creates. A written partnership agreement is essential.

Limited partnership (LP)

At least one general partner manages the business and carries unlimited liability, while limited partners invest and are generally protected, as long as they do not manage. Common for real estate and investment ventures.

Limited liability partnership (LLP)

Every partner has limited liability, so one partner is not responsible for another's misconduct. Many states restrict LLPs to licensed professions such as law and accounting.

All three are pass-through entities that file Form 1065 and issue each partner a Schedule K-1.

What a partnership agreement should cover

Whatever type of partnership you form, put the deal in writing. Cover each partner's capital contribution, how profits and losses are split, who can sign contracts and open accounts, how decisions are made, what happens if a partner wants to leave, dies or becomes disabled, and how the business is valued in a buyout. Without an agreement, state default rules apply, and they rarely match what the partners intended.

Limited Liability Company (LLC)

An LLC is a state-law entity that combines limited liability with flexible taxation. It is the most popular choice for new small businesses. According to the IRS LLC page, a single-member LLC is disregarded as separate from its owner for income tax by default, and an LLC with at least two members is treated as a partnership. An LLC can file Form 8832 to be taxed as a corporation, or Form 2553 to be taxed as an S corporation.

Single-member vs multi-member LLC

A single-member LLC is simple to run: one owner, profit reported on Schedule C, and an operating agreement that mainly documents the separation between owner and business. A multi-member LLC files a partnership return on Form 1065, issues K-1s and needs a fuller operating agreement covering ownership percentages, voting, distributions and exits. Adding a member to a single-member LLC changes its default tax classification to a partnership, so plan the timing with an accountant.

Running an LLC means a state filing fee, a registered agent, an operating agreement and, in many states, an LLC annual report with a fee. Our step-by-step guide to how to start an LLC covers the formation process, and how to file taxes as an LLC explains each tax classification.

Corporations: C Corp and S Corp

C corporation

A C corporation is a separate taxpayer. It pays federal corporate income tax at a flat 21% on its profits, and shareholders pay tax again when profits are distributed as dividends, which is the classic double taxation. In exchange, a C corp can have unlimited shareholders, multiple classes of stock and foreign or corporate owners, which is why startups raising venture capital usually choose it. It must hold board and shareholder meetings, keep minutes and file Form 1120.

S corporation

An S corporation is a tax election, not a separate entity type under state law. A corporation or an LLC files Form 2553 to be taxed under Subchapter S. The IRS requirements include being a domestic corporation, having no more than 100 shareholders, having only allowable shareholders (individuals, certain trusts and estates, not partnerships, corporations or nonresident aliens) and having only one class of stock. Form 2553 must be filed no more than 2 months and 15 days after the start of the tax year the election should take effect, or at any time during the prior year.

Owners who work in an S corp must take a reasonable salary through payroll. Profit above that salary passes through without self-employment tax. Our comparison of S corp vs LLC covers when the election pays off.

Benefit and nonprofit corporations

A benefit corporation is taxed like a C corp but commits to a public benefit alongside profit. A nonprofit corporation can apply for tax-exempt status but cannot distribute profits to members.

Worked Example: Self-Employment Tax on $100,000 of Profit

The structure you choose can change how much payroll-type tax you pay. Consider a consultant with $100,000 of net business profit in 2026.

As a sole proprietor or single-member LLC

• Net earnings subject to self-employment tax: $100,000 × 92.35% = $92,350
• Self-employment tax: $92,350 × 15.3% = $14,129.55

As an LLC taxed as an S corporation

• Reasonable salary paid through payroll: $60,000
• Employer and employee FICA combined: $60,000 × 15.3% = $9,180.00
• Remaining $40,000 passes through as profit, with no self-employment tax on it

The difference

• Payroll tax saving: $14,129.55 - $9,180.00 = $4,949.55

That headline saving is before the extra costs of an S corp: payroll software or a payroll service, a separate Form 1120-S return (often prepared by a paid professional), state unemployment insurance on the salary and, in some states, additional franchise or entity taxes. The example also simplifies income tax, ignoring the deduction for half of self-employment tax and the qualified business income deduction, which the One Big Beautiful Bill changes kept in place. The salary must be genuinely reasonable for the work, not set low to save tax. Run the numbers with your own costs before electing.

How Entity Type Affects Your Invoices and Paperwork

Your structure shows up on every invoice you send:

• Legal name: an LLC or corporation should invoice in its exact registered name, including "LLC" or "Inc." A sole proprietor invoices in their own name or registered trade name.
• Tax ID: sole proprietors can use an SSN, but an EIN is safer to share. Entities need an EIN. See tax ID on invoice and how to get an EIN.
• Form W-9: clients ask for a W-9 showing your tax classification, which decides whether they issue you a 1099. Our guide does an LLC get a 1099 explains the rules.
• Bank account: payments should go to an account in the business's name, especially for an LLC or corporation, to protect the liability shield.

When you change structure, update your invoice template, W-9 and bank details at the same time. The US invoice generator makes it easy to save a fresh business profile.

Beneficial ownership reporting in 2026

Many owners heard about the Corporate Transparency Act and beneficial ownership information (BOI) reports. According to FinCEN's BOI page, US companies are exempt and no longer required to file BOI reports; the requirement now focuses on certain foreign companies registered to do business in the US. Check the page for the latest position before relying on this.

How to Choose a Business Structure: A Step-by-Step Process

1. Count the owners. One owner: sole proprietorship, single-member LLC or corporation. Two or more: partnership, multi-member LLC or corporation.
2. Assess liability risk. Physical work, client property, advice that clients rely on or employees all raise risk. Higher risk points toward an LLC or corporation plus insurance.
3. Estimate profit. Below a modest level, a sole proprietorship or default LLC is simplest. When profit is consistently high, model an S corp election as in the example above.
4. Consider funding plans. If you will raise venture capital or issue different share classes, a C corporation is usually expected.
5. Compare state costs. Formation fees, annual report fees and franchise taxes vary widely by state. Some states charge a modest one-time filing fee and a small annual report fee, while others charge a meaningful minimum annual tax for every LLC or corporation regardless of profit. If you live in one state, forming in another rarely saves money, because you usually have to register as a foreign entity at home and pay both states.
6. Weigh paperwork. Corporations need meetings and minutes; S corps add payroll; LLCs need annual filings in many states.
7. Get advice and file. Talk to an accountant or attorney, form the entity, get an EIN, open a business bank account and update contracts and invoices.

Example: matching structure to three businesses

A graphic designer earning a modest side income with no employees can reasonably stay a sole proprietor and add an LLC later. A two-person landscaping company with a truck, equipment and employees has real liability exposure and would usually form a multi-member LLC with insurance, then review an S corporation election once profits are steady. A software startup planning to raise money from investors and grant stock options would typically form a C corporation from the start, because investors expect that structure.

Common Mistakes When Choosing a Business Entity

• Forming an LLC and then mixing funds. Paying personal bills from the business account weakens liability protection.
• Electing S corp too early. Payroll and filing costs can wipe out the saving at low profit levels.
• Skipping the operating or partnership agreement. Disputes between owners are far harder to settle without one.
• Forgetting state filings. Missed annual reports can lead to penalties or administrative dissolution.
• Not updating invoices. Invoicing in your personal name after forming an LLC confuses clients and weakens separation.

For a focused comparison of the two most common choices, read LLC vs sole proprietorship. If you are starting a service business, our guide to how to start a consulting business shows how the structure choice fits into the wider launch.

Invoice Under Your New Business Structure

The types of business entities come down to a trade-off between simplicity, liability protection and tax treatment. Sole proprietorships are easiest, LLCs add protection with flexible tax options, S corp elections can cut payroll-type tax at higher profits, and C corporations suit companies raising capital. Whichever structure you choose, show the correct legal name and tax ID on your invoices. Open the free invoice generator to create a professional invoice under your business name today. When your invoice looks right, download it as a PDF and send it straight to your client.