If you're launching a business—or thinking about restructuring—deciding how to legally set up your company is more than just checking a box. It can affect how you're taxed, how much personal risk you take on, and how flexible your business will be as it grows.

Over the years, I’ve helped business owners work through this decision with one guiding principle: your entity should match your goals—not just your current situation. Here’s a breakdown of the four most common structures and how I help clients figure out what’s best for them:

1. Sole Proprietorship: Low Barriers, Higher Risk

A sole proprietorship is the most informal way to run a business. It doesn’t require any official registration (aside from local licenses), and you report income and expenses on your personal tax return.

When it works:

• You're freelancing or testing a small idea

• You want to keep things lean and simple

Things to watch for:

• You’re personally responsible for debts or lawsuits

• Limited tax planning options

2. Limited Liability Company (LLC): Versatile and Protective

An LLC creates a legal boundary between your personal and business finances. It’s a favorite among solo entrepreneurs and partnerships because it’s flexible and relatively easy to maintain.

Why it’s useful:

• Personal liability protection

• Freedom to choose how you want to be taxed

• Works well for businesses that are scaling or hiring

You can keep the default tax treatment (like a sole proprietorship or partnership), or file an election to be taxed as an S corporation—more on that next.

3. S Corporation: For Businesses Ready to Optimize

When a business reaches consistent profitability, the S corp can provide a strategic tax advantage. Instead of paying self-employment tax on all your income, you take a salary (which is taxed normally), and the rest as a distribution (which isn’t subject to self-employment tax).

Great for:

• Owners who are actively working in the business

• Businesses making enough to justify running payroll

• Reducing overall tax liability with the right structure

Just remember—this comes with responsibilities. You need to run payroll, file additional forms, and make sure your compensation is “reasonable” in the eyes of the IRS.

4. C Corporation: Built for Scale and Investment

C corps are standard for businesses looking to attract investors or issue stock. Unlike S corps, they don’t pass profits through to your personal tax return—instead, the company pays its own taxes.

Best suited for:

• Startups planning to raise venture capital

• Companies reinvesting heavily in growth

• Owners comfortable with corporate formalities

Keep in mind, if you take profits out of the business, they can be taxed twice—once at the corporate level, and again personally.

Making the Call

There’s no universally “best” structure—it’s about aligning your legal and tax setup with the direction you’re trying to take your business.

Some questions I ask clients before we decide:

• What’s your income right now—and where is it headed?

• Are you working solo, or building a team?

• Do you need liability protection?

• Are you planning to bring on investors?

• How hands-on do you want to be with compliance?

If you're unsure where your business fits, you're not alone. Choosing a structure is one of the most strategic decisions you'll make early on—and it's worth getting guidance.

If you'd like to run through the options with someone who’s been through this before—just reach out. I’m always happy to help entrepreneurs build a solid foundation.