Understand your options and make the right choice for your journey.
Starting a business is an exciting step, and choosing the right structure helps set the stage for your success. Whether you’re launching a side hustle, building a solopreneur business, or teaming up to start a microbusiness, this guide will walk you through the most common business structures and help you pick the one that fits your goals, protects your future, and supports your growth.
Introduction
If you’re starting a solopreneur business or launching a microbusiness, one of the first big decisions you’ll need to make is how to legally structure your business. It’s not the most exciting part of entrepreneurship—but it’s a foundational one.
Your business structure affects your taxes, your personal liability, and even how flexible your business can be as you grow. But here’s the good news: you don’t need a law degree or a CPA license to understand your options. In this guide, we’ll break down the most common business structures used by business owners. We’ll talk through the pros, the cons, and the kinds of situations each one works best for—so you can make a confident, informed choice that supports your goals now and down the road.
Related: 7 Proven Steps to Turn Your Passion Into a Business
Sole Proprietorship: Simple and Straightforward
If you’re just getting started, chances are you’ve already heard about sole proprietorships—and for good reason. This is the simplest and most common business structure, especially among solopreneurs who are freelancing, consulting, or testing out a side hustle. In fact, if you’ve started doing business under your own name without filing any special paperwork, you may already be operating as a sole proprietor without even realizing it.
As a sole proprietor, there’s no legal separation between you and your business. You’re one and the same in the eyes of the law. That means you report all your business income and expenses on your personal tax return using a Schedule C. No corporate tax forms, no separate legal entity.
It’s easy and inexpensive to get started. In most places, you don’t need to register anything unless you want to use a business name that’s different from your own. In that case, you’ll likely need to file a DBA, or “Doing Business As” registration with your local or state government.
That simplicity is a big plus—but it also comes with a trade-off. Since there’s no legal boundary between you and your business, you’re personally responsible for any business debts or legal issues. If something goes wrong—a client sues you, you default on a loan, or there’s a major financial setback—your personal assets could be at risk.
When this might be right for you:
- You’re just getting started and want something quick and easy.
- You’re running a low-risk business like writing, design, or tutoring.
- You want to test an idea before investing too much time or money.
Single-Member LLC: Protection with Flexibility
An LLC offers something many solopreneurs eventually want: a layer of protection between their personal and business finances. With a single-member LLC, your business becomes a separate legal entity. That means if your business gets sued or falls into debt, your personal assets—like your car, savings, or home—are generally protected.
Setting up an LLC does require some paperwork. You’ll need to file Articles of Organization with your state and pay a fee (usually between $50 and $500, depending on where you live). Some states also require an annual report or additional compliance steps, so it’s worth checking with your state’s small business office or website.
Where LLCs really shine is in their flexibility. By default, single-member LLCs are taxed like sole proprietorships—meaning profits pass through to your personal tax return. But you can also elect to be taxed as an S-Corporation, which may reduce your self-employment taxes once your income reaches a certain level.
When this might be right for you:
- You want personal liability protection.
- Your business has grown beyond a basic side hustle.
- You’re taking on more risk, revenue, or long-term plans.
S Corporation (S-Corp): Tax Efficiency for Growing Solopreneurs
An S-Corporation isn’t a business structure in the traditional sense—it’s a tax election. To be an S-Corp, you first need to form either an LLC or a corporation, then file IRS Form 2553 to elect S-Corp status.
So why bother? For solopreneurs with consistent and significant income, S-Corp status can lead to real tax savings. As an S-Corp owner, you pay yourself a reasonable salary, which is subject to payroll taxes. But any remaining profits can be distributed to you as “dividends,” which are not subject to self-employment tax. This split can help lower your overall tax burden—especially once your income passes a certain threshold.
That said, S-Corps require more paperwork and discipline. You’ll need to run payroll (even if it’s just for yourself), file separate business tax returns, and stay on top of compliance requirements.
When this might be right for you:
- You’re earning enough to benefit from self-employment tax savings.
- You’re comfortable (or have support) handling more admin and payroll.
- You’re thinking long-term and want to optimize your tax structure.
Partnership: Built for Two (or More)
If you’re going to start a microbusiness with someone else, a partnership may be the right structure to start with. Partnerships are easy to form and generally don’t require formal registration (unless you’re using a business name, which may require a DBA).
There are a few types of partnerships—general partnerships, limited partnerships (LPs), and limited liability partnerships (LLPs)—but the core idea is the same: two or more people share ownership of the business.
In a general partnership, all partners share responsibility, liability, and profits. It’s critical to create a solid partnership agreement that outlines who does what, how decisions are made, and what happens if one person wants to leave. Without one, you’re opening the door to confusion—or even legal disputes—later on.
Partnerships are pass-through entities, which means each partner reports their share of the profits on their personal tax return. If you’re the kind of team that thrives on collaboration and shared goals, a partnership can be a great way to get started together.
When this might be right for you:
- You’re launching a microbusiness with a co-founder or collaborator.
- You want to keep things simple while sharing responsibilities.
- You’re ready to draft a clear agreement and communicate openly.
Multi-Member LLC: Partnership Protection Made Simple
If you’re starting a microbusiness with a partner but want more protection than a traditional partnership offers, a multi-member LLC might be your best option.
A multi-member LLC creates a separate legal entity for your business, meaning your personal assets are protected if the business runs into legal trouble or financial issues. You still get the flexibility and simplicity of a partnership—but with the added peace of mind that your home, savings, and personal belongings are better shielded from business liabilities.
By default, the IRS treats a multi-member LLC like a partnership for tax purposes. Profits and losses pass through to each member’s personal tax return, and you avoid the double taxation that corporations can face. Plus, if your business grows and you want additional tax benefits later, you have the option to elect S-Corp status without having to reorganize the business.
When this might be right for you:
- You’re starting a microbusiness with one or more partners.
- You want liability protection without the complexity of a corporation.
- You want the option to grow into an S-Corp structure later if needed.
How to Choose the Right Business Structure
There’s no universal “best” option—it really depends on your specific goals, income, and risk level. Here are a few things to think through as you make your decision:
1. How much risk is involved in your business?
If there’s any chance you could be sued or face financial liability, an LLC or S-Corp can help protect your personal assets. This is especially important if you’re working with clients, handling sensitive information, or offering services where mistakes could be costly.
2. How much are you earning (or planning to earn)?
If you’re earning a small, variable amount and keeping things super simple, a sole proprietorship might work fine for now. If your income is growing steadily, you may want to talk to a tax pro about whether an LLC or S-Corp will save you money in the long run.
3. Are you planning to scale or stay solo?
Some solopreneurs plan to stay lean, while others eventually want to grow into full-fledged businesses. If you’re planning to hire, raise funds, or bring in a partner later, choosing a structure like an LLC now could make the transition easier.
4. Have you talked to a professional?
Even if you’re doing your own research (and you’re clearly doing a great job if you’re here), it’s smart to have a quick conversation with a CPA or business attorney. They can help you make sure your structure fits your goals and complies with local rules.
Tech Tip:
Ready to set up your business structure? Services like CorpNet make it easy to form an LLC, S-Corp, or corporation online. They handle the paperwork, filings, and compliance steps so you can stay focused on launching your business.
Choosing your structure isn’t just about checking boxes—it’s about setting up a business that matches your vision for the future.
If you’re still in the early planning stages, be sure to check out The Ultimate Guide to Starting Your Microbusiness for even more step-by-step support.
At-a-Glance Comparison
| Structure | Setup Difficulty | Liability Protection | Tax Filing | Best For |
|---|---|---|---|---|
| Sole Proprietorship | Low | None | Personal return (Schedule C) | Freelancers, side hustles |
| Single-Member LLC | Moderate | Yes | Flexible (personal or S-Corp) | Growing solopreneur businesses |
| Multi-Member LLC | Moderate | Yes | Flexible (partnership or S-Corp) | Microbusinesses with partners |
| S-Corp | High | Yes | Business return + personal salary | High-income solopreneurs |
| Partnership | Moderate | Limited (varies) | Shared personal returns | Simple co-owned businesses |
Pro Tip:
Your business structure isn’t set in stone. Many business owners start simple and update their structure as they grow. Focus on what fits best today—and stay flexible for tomorrow.
Key Takeaways
- Sole Proprietorships are simple and inexpensive but leave you personally liable for business debts.
- Single-Member LLCs offer liability protection and flexible tax options, making them a popular choice for growing solopreneurs.
- Multi-Member LLCs provide liability protection for businesses with two or more owners while keeping taxes simple.
- S-Corps can offer tax advantages for high-earning solopreneurs but require more administration.
- Partnerships are ideal for co-owned businesses that want simplicity, but a formal agreement is essential.
- Choosing the right structure depends on your current income, risk level, and long-term goals—and it’s smart to revisit it as your business evolves.
Final Thoughts
Choosing the right business structure is one of those early decisions that can either support or complicate your growth later. The good news? You’re not locked in forever. Many business owners start as sole proprietors, then switch to an LLC or elect S-Corp status once their income or risk level increases.
Whether you’re a solopreneur, a microbusiness owner, or just getting your idea off the ground, the important thing is that your structure matches your needs right now—and that it’s flexible enough to grow with you.
If you’re ready to map out your next steps, you might also like Your Microbusiness Roadmap — a practical guide to planning and growing your business with confidence.
Have you chosen your business structure yet?
Share your experience in the comments! What did you decide—and why? Or if you’re still weighing your options, feel free to drop a question below. Let’s figure it out together.
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