Of the various decisions you need to make when starting a business, one of the most critical choices is the type of business structure you select. It will affect the amount you need to pay in taxes, the paperwork you need to do, and the personal liability you need to shoulder in case of loss. Certainly, choosing a business structure is not a decision to be taken lightly.

There are basically four types of legal business structures including sole proprietorship, partnership, corporation, and the limited liability company (LLC). The sole proprietorship is the most common type of structure because it?s easy to start and offers complete control to the owner. Its main downside is that the owner becomes personally liable for all the financial obligations related to his business.

Meanwhile, the partnership is a business formed by two or more people who shares in the profits and losses of the business. The primary disadvantage of this legal structure is that all partners become liable for the financial obligations related to the business. The third type of legal structure is the corporation. It is a legal entity created for the sole purpose of doing business. Like an individual, a corporate can be held liable for its actions.

A popular type of legal structure today is the limited liability company (LLC). It allows the owners to derive the benefits of both a partnership and a corporation. The profits and losses can be given to the owners without taxation even as they are protected against personal liability.

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