Which Business Entity Is Best

Businesses vary according to their goals, costs, investor interest, risk tolerance, and financial standing. There will never be a single, perfect choice for everyone when it comes to the best entities to use for your business. The options vary from sole proprietorship which provides no protection for personal liability to a complex choice that has multiple layers of business entities and provide maximum personal liabilities and anything in between. 

Listed below are a few options: limited liability limited partnerships (LLLPs), family limited partnerships (FLPs), C corporations, S corporations, and sole proprietorships. We have listed for you the advantages and disadvantages of each one:

Sole Proprietorship

  • Business and person are equal
  • There is 0 liability protection meaning that debts are liable to the owner
  • No filing requirements & no registration cost
  • Taxes are reported on personal tax returns
  • There is no requirement to pay unemployment tax
  • Owners can mix business and personal assets with no issues
  • Owners can take loans only and can’t raise money from selling interest
  • Rarely succeeds after the death of the owner(s) meaning they could lose value

Limited Partnership

  • Simple and inexpensive to form
  • General partners are liable for any dent and ultimately control the business
  • Partners do not have control over the business and are usually exempt from the debts incurred
  • No annual gatherings required
  • Very few formalities required
  • Personal tax returns reflect the Partners’ shares of profit & loss
  • Taxes tend to be lower versus an LLC or corporation

Limited Liability Company

  • Owners are shielded from personal liability for debts incurred by the company
  • LLC utilize partnership-style, pass through taxation (advantageous for small companies especially)
  • Simple operation and maintenance
  • Can offer better liability protection than corporations
  • Utilize charging order protection.
  • LLC’s are not ideal for businesses looking to become public or make money in the capital market
  • More expensive to set up than partnerships
  • LLC’s, more often than not, require periodic filings with the state along with annual fees
  • Some states don’t allow LLC’s


  • Owners are shielded from personal liability for company debts or responsibilities
  • Corporations have legal precedent to guide their owners
  • Best choice for companies that plan to go public at some point
  • Corporations can raise money through the sale of securities
  • Corporations can utilize the transfer of securities by transferring ownership
  • Corporations can have an unlimited lifespan
  • Corporations are allowed to create tax benefits sometimes (except C-corporations could be subject to double taxation on profits)
  • Corporations require many annual meetings while the owners/directors must observe particular ones
  • Corporations are more expensive to start
  • Corporations require periodic filings with the state along with paying annual fees

Speak with a legal advisor familiar with these concepts to find out which entity is best for your business.