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The most common business forms and their major differences

On Behalf of | Oct 11, 2022 | Business Law |

When you decide that you want to go into business, one of the first steps you need to take is the selection of your business form. The entity that you create for the purpose of doing business will influence everything from your personal liability to the taxes that you have to pay.

Learning the basics of the four most common business forms and what makes them different from each other can help you choose the best option in your case.

A sole proprietorship

The most basic business entity is a sole proprietorship. Such an arrangement allows you to be the only owner, which means you have sole control over the company and are the only one to profit from it. It also means you have sole accountability for its failings. Sole proprietorship has the added benefit of allowing the owner to file one tax return, instead of a separate return for the business.

A business partnership

Like sole proprietorship, a business partnership typically involves the direct ownership of a company by two or more people managed through a contractual agreement. Partnerships may involve an investor and an executive or siblings who want to work together.

Partnerships typically require careful contract negotiation to properly protect each of the partners and to address what will happen when one partner wants to buy out the other or retire. North Carolina law allows Limited Partnerships, General Partnerships and Limited Liability Partnerships, which are similar to Limited Liability Corporations (LLCs).

Limited liability corporations

If you want to produce products or perform work on people’s homes, the potential is there for someone to bring a very expensive lawsuit against the company. As a sole proprietor or partner, you have risk in such a lawsuit.

Forming an LLC can be a way to shield yourself from financial liability if someone sues the business or if it fails and has outstanding financial obligations. LLCs also offer text benefits for the owner operating the company.


There are several different kinds of corporations, including non-profit entities, which may be the right structure for your company. If you intend for the business to grow, if there will be multiple people with an ownership interest or if there is a need for multiple owners and executives, then a corporation may be the right business form for your enterprise.

Identifying the right business entity is a crucial step when you hope to start your own company.

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