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Which business structure is right for your company?

On Behalf of | Aug 27, 2021 | Business Law

When starting a business, there are numerous decisions you have to make. One of the first is deciding which type of business structure is right for your company. Choosing a business entity will affect various things, including how you will run your company and how it is taxed.  

There are four business entity types for Minnesota residents to choose from when starting their own companies. They are: 

  • Corporation 
  • Limited liability company 
  • Partnership 
  • Sole proprietorship 

All have their advantages and disadvantages. All are very different in what they can offer you. 


There are two main types of corporations — C and S. A C corporation is an entity separate from the company’s owner. The owner can be in charge of everything; however, they are not personally liable for the business’ debts and liabilities, and company taxes are separate from the owner’s personal income taxes. With an S corporation, limited liability protections are still in place, but an owner can claim gains and losses on their individual tax return.  

There are certain tax benefits and personal protections that come with choosing a corporation as your business entity. It is an expensive route to go, and requires more paperwork and ongoing obligations, which is a turn-off for many smaller business owners.  

Limited liability company 

An LLC offers many of the same protections as a corporation — such as an owner’s personal property is separate and protected, and there are certain tax benefits. Unlike a corporation, there are fewer ongoing requirements, which is appealing, but as a corporation, it is more expensive to set up an LLC than, say, a sole proprietorship or partnership.  


When going into business with a partner and not wanting the expense of setting up a corporation or LLC, setting up a general partnership entity is a good way to go. It is easy to start, takes less paperwork, and holds each partner equally responsible for the company’s debts and liabilities. While a good place for partners to start, it does lack the personal protection offered with corporation or LLC entities.  

Sole proprietorship 

This is the entity type used by many new business owners. It is easy and less expensive to set up and allows company owners to deduct business losses on their individual income tax returns. The biggest concern with this business structure is that the owner is personally responsible for debts and liabilities, meaning you could lose your home, cars and any other personal assets if you end up in debt or someone sues your business. 

You have to decide which business structure works best for your current needs and future goals. If needed, you can start with one and convert it to another down the line. Not sure which to choose? Assistance is available to you to help you choose and complete the business formation process.