Starting a business is exciting, but it comes with a lot of planning. One of the first big decisions you’ll face is choosing the right structure. There are many types of businesses, each with its own unique benefits, responsibilities, and tax considerations. Let’s break down the most common business types, their key characteristics, and how to choose the best one for your venture.
13 types of business structures
The table below outlines the most common types of businesses, how they differ from each other, and who they’re ideal for. To learn more about a specific structure, click on it for a detailed description.
| Business type | Ownership | Liability | Taxes | Ideal For |
| Sole proprietorship | One owner | Unlimited personal liability | Personal income tax | Individuals starting small, low-cost businesses |
| General partnership (GP) | Two or more owners | Unlimited personal liability | Personal income tax | Small teams that want a simple setup and shared management |
| Limited partnership (LP) | One or more general partners and limited partners | General partners have unlimited personal liability; limited partners have investment liability | Personal income tax | Investors who want limited risk with a managing partner |
| Limited liability partnership (LLP) | Two or more partners | Limited liability | Personal income tax | Professionals like lawyers, accountants, and consultants |
| Limited liability company (LLC) | One or more members | Limited liability | Choice of pass-through or corporate tax | Flexible option for small to medium-sized businesses |
| C corporation (C corp) | Unlimited shareholders | Limited liability | Corporate tax + possible double taxation on dividends | Larger companies seeking outside investors or an IPO |
| S corporation (S corp) | Up to 100 shareholders | Limited liability | Pass-through taxation | Small to mid-sized businesses wanting tax benefits |
| Close corporation (CC) | Limited number of shareholders | Limited liability | Corporate or pass-through taxation (varies) | Family-owned or tightly held businesses |
| Public benefit corporation (PBC/B corp) | Shareholders with a public mission | Limited liability | Corporate or pass-through taxation (varies) | For-profits focused on social or environmental goals |
| Nonprofit organization | No owners; governed by a board | Limited liability | Tax-exempt (if qualified) | Charities, foundations, and mission-driven organizations |
| Cooperative (co-op) | Owned by members | Limited liability | Varies; often pass-through | Groups that share profits and decision-making equally |
| Joint venture | Two or more entities/people | Shared liability (varies by structure) | Varies | Temporary projects or partnerships between businesses |
| Franchise | Franchisee under the franchisor brand | Varies by agreement | Varies | Entrepreneurs who want a proven business model and brand |
Related: Small business ideas
Sole proprietorship
A sole proprietorship is the simplest type of business. It is owned and operated by one person, easy to set up, doesn’t require formal registration in most states, and gives the owner full control. However, there’s no legal separation between the owner and the business, which means the owner is personally responsible for all debts, legal obligations, and taxes. Sole proprietorships are common among freelancers, consultants, and small, local businesses.
Pros:
- Simple and inexpensive to start
- Full control over decisions and profits
- Minimal paperwork and reporting requirements
Cons:
- Unlimited personal liability for debts and legal issues
- Harder to raise capital compared to other business types
- Business ends if the owner leaves or passes away
Example:
A freelance graphic designer running their own studio without forming an LLC is operating as a sole proprietorship.
Related: Sole proprietorship vs. LLC
Partnership
A partnership is a type of business owned by two or more people who share management responsibilities and profits. Partnerships come in several forms, including general partnerships (GP), limited partnerships (LP), and limited liability partnerships (LLP). Each has its own approach to liability, taxes, and management.
General partnership (GP)
A general partnership is a type of business owned by two or more people who share equally in management, profits, and legal responsibilities. It’s easy to form, but all partners have unlimited personal liability for the business’s debts and obligations. Many GPs operate with a partnership agreement that outlines each person’s role, profit share, and exit terms.
Pros:
- Simple and inexpensive to form
- Shared decision-making and responsibilities
- Pass-through taxation (profits taxed as personal income)
Cons:
- Unlimited personal liability for all partners
- Disagreements can slow decision-making
- Business ends if a partner leaves, unless otherwise agreed
Example:
Two friends opening and running a local coffee shop together without forming an LLC or corporation are operating a general partnership.
Limited partnership (LP)
A limited partnership is a type of business that combines at least one general partner, who manages the business and assumes unlimited liability, with one or more limited partners, who contribute capital but have no role in daily operations. General partners have unlimited liability, while limited partners only have liability protection up to the amount they’ve invested.
Pros:
- Limited partners enjoy liability protection
- Allows for passive investment without management duties
- Pass-through taxation
Cons:
- General partners still have unlimited liability
- More paperwork than a general partnership
- Limited partners have no say in daily operations
Example:
A real estate development project where one partner manages construction and financing while others contribute funds as silent investors is structured as a limited partnership.
Limited liability partnership (LLP)
In a limited liability partnership, two or more partners share management responsibilities while enjoying liability protection. Each partner is shielded from personal responsibility for the business’s debts and from legal claims against other partners. Many states require at least two partners to form an LLP, and some limit this structure to licensed professions.
Pros:
- Liability protection for all partners
- Pass-through taxation
- Flexible management structure with shared decision-making
Cons:
- Not available in all states or for all industries
- More registration and compliance requirements than a GP
- May have higher startup costs
Example:
A group of three accountants forming a firm together, where each partner can make management decisions while protecting their personal assets, operates as an LLP.
Related: LLP and LLC differences
Limited liability company (LLC)
A limited liability company, or LLC, is a type of business that blends the liability protection of a corporation with the tax flexibility of a partnership or sole proprietorship. Owners—called members—aren’t personally responsible for business debts or legal obligations. LLCs can choose between pass-through taxation or being taxed as a corporation, making them a popular choice for small and medium-sized businesses. Learn more about what is an LLC and the types of LLCs before deciding if it’s the right fit for you.
Pros:
- Limited liability protection for owners
- Flexible tax options
- Fewer formalities than a corporation
- Can have one owner or multiple owners
Cons:
- Requires registration and annual fees
- Rules vary by state
- May be harder to raise capital compared to a corporation
Example:
Two friends launch a small marketing agency and decide to form an LLC to protect their personal assets while keeping flexible tax options.
If you’re thinking about forming your own LLC, you can read our guide on how to start an LLC and get tips to choose an LLC name. When you’re ready to take the next step, GoDaddy Airo® can help you set up your LLC.
Corporation
A corporation is a type of business that exists as a separate legal entity from its owners. It can own property, enter into contracts, and be held responsible for its debts. Corporations face more regulations and formalities than other business types, but they also have less liability and greater potential for raising capital.
C corporation (C corp)
A C corporation is a type of business that’s treated as a completely separate legal entity from its owners, who are known as shareholders. It can have unlimited shareholders from anywhere in the world and can sell multiple classes of stock. Profits are taxed at the corporate level, and dividends paid to shareholders are taxed again on their personal returns. C corps must follow strict governance rules, including holding annual meetings, keeping detailed records, and filing regular reports with the state.
Pros:
- Strong liability protection for shareholders
- Unlimited growth potential with no shareholder limits
- Ability to sell stocks and attract institutional investors
Cons:
- Subject to double taxation
- More paperwork, compliance, and regulatory oversight than other structures
- Costlier to form and maintain
Example:
A national technology company with thousands of shareholders and multiple product lines that regularly issues public stock operates as a C corporation.
S corporation (S corp)
An S corporation offers the liability protection of a C corp but avoids double taxation by passing income, losses, deductions, and credits through to shareholders’ personal tax returns. To qualify, the business must meet strict IRS criteria, including a limit of 100 shareholders who must be U.S. citizens or residents, and only one class of stock.
Pros:
- Limited liability for owners
- Pass-through taxation avoids double taxation
- Ability to pay owners a salary plus distributions, potentially reducing self-employment taxes
Cons:
- Ownership restrictions limit growth potential
- More compliance requirements than an LLC or sole proprietorship
- Must meet IRS rules to maintain S corp status
Example:
A family-owned manufacturing company with 20 U.S. shareholders elects S corporation status to reduce its tax burden while maintaining liability protection.
Close corporation (CC)
A close corporation is a privately held type of company with a small number of shareholders, often family members or close associates. It offers liability protection but operates with fewer formalities than a standard corporation. Shares are not publicly traded, and ownership transfers are often restricted to maintain tight control.
Pros:
- Limited liability for owners
- Fewer formalities than a traditional corporation
- Greater control over decision-making
Cons:
- Limited ability to raise capital compared to public companies
- Ownership transfer restrictions can reduce flexibility
- Not available in all states and may require special provisions
Example:
A regional construction firm owned and managed by three siblings, with an agreement to keep ownership within the family, operates as a close corporation.
Public benefit corporation (PBC/B corp)
A public benefit corporation is a for-profit business with a legally defined mission to create a positive social or environmental impact in addition to earning profits. Unlike a nonprofit, a PBC can distribute profits to shareholders while still pursuing its mission. Many states require PBCs to publish an annual benefit report showing their progress toward stated goals, and leadership is legally accountable for balancing profit with purpose.
Pros:
- Limited liability for shareholders
- Attracts investors interested in social or environmental causes
- Balances profit-making with a public good
Cons:
- Additional reporting requirements to demonstrate impact
- Not available in all states
- May face pressure to prove both financial and mission success
Example:
A fair-trade coffee company that commits to sustainable sourcing and environmental conservation in its corporate charter operates as a public benefit corporation.
Nonprofit organization
Nonprofit organizations serve a charitable, educational, religious, or other public-purpose mission. They are typically overseen by a board of directors, which provides governance, ensures the organization follows its mission, and manages major strategic decisions.
Nonprofits can apply for tax-exempt status with the IRS, meaning they don’t pay federal income taxes on eligible activities. Any surplus revenue is reinvested into the organization’s mission rather than distributed to shareholders or owners.
Pros:
- Potential eligibility for federal and state tax exemptions
- Ability to receive tax-deductible donations and grants
- Mission-driven structure can attract volunteers and community support
Cons:
- Must follow strict compliance and reporting requirements
- Limited control for founders once a board of directors is in place
- Restrictions on how funds can be used
Example:
A local food bank that collects donations and distributes meals to families in need operates as a nonprofit organization with 501(c)(3) tax-exempt status.
Cooperative (co-op)
A cooperative is a type of business owned and operated by its members, who share in decision-making and profits. Members can be consumers, workers, or producers, depending on the co-op’s purpose. Each member typically has one vote, regardless of how much capital they’ve contributed. Profits, known as patronage dividends, are distributed among members based on how much they use the co-op’s services or contribute to its operations, rather than on the size of their financial investment.
Pros:
- Democratic decision-making among members
- Shared profits based on participation
- Can strengthen community relationships
Cons:
- Slower decision-making due to member input
- Limited ability to attract outside investors
- May require significant member participation to succeed
Example:
A grocery store owned and operated by local residents who each hold a membership and vote on major decisions functions as a consumer cooperative.
Joint venture
A joint venture is a type of business arrangement in which two or more parties—typically companies—agree to collaborate on a specific project or goal for a limited period. Each party contributes resources such as money, expertise, or equipment, and shares in the profits, losses, and management of the venture.
Pros:
- Shared resources reduce individual risk
- Access to new markets and expertise
- Flexible structure tailored to the project
Cons:
- Shared control can lead to conflicts
- Profits must be split according to the agreement
- Venture ends when the project is completed
Example:
Two construction companies from different countries forming a temporary partnership to build an international airport operate under a joint venture agreement.
Franchise
A franchise is a type of business where an entrepreneur (the franchisee) operates a business using the name, branding, and established systems of a larger company (the franchisor). In exchange for fees and ongoing royalties, the franchisee benefits from a proven business model, brand recognition, and ongoing support. Franchises are common in industries like food service, fitness, retail, and hospitality.
Pros:
- Operate under a recognized and trusted brand
- Access to training, marketing, and operational support
- Lower risk compared to starting from scratch
Cons:
- Initial franchise fees and ongoing royalties can be expensive
- Limited control over products, services, and branding
- Must follow strict franchisor rules and guidelines
Example:
An entrepreneur opening a fast-food restaurant under the McDonald’s brand, using its menu, training programs, and marketing campaigns, is operating a franchise.
How to choose the right business structure
Choosing the right business structure is one of the most important early decisions you’ll make because it shapes your legal responsibilities, taxes, funding options, and even how easily you can expand or sell in the future. Below are tips for matching your business structure with your goals. Once you’ve made your decision, you can follow our guide to register a business and start building your foundation.
Number of owners
The number of owners your business has can quickly narrow down your options. Some business types are designed for a single owner, while others require two or more.
- 1 owner: Sole proprietorship, single-member LLC, corporation
- 2+ owners: General partnership, LP, LLP, multi-member LLC, corporation, cooperative
- Flexible ownership: C corp, S corp, cooperative, nonprofit (board-governed)
Desired liability protection
Liability protection determines how much your personal assets are shielded from business debts or legal claims. Carefully consider how much risk you’re willing to take on before choosing a business structure.
- Full liability protection: LLC, LLP, C corp, S corp, close corporation, PBC, nonprofit, cooperative
- Partial liability protection: LP (for limited partners only)
- No liability protection: Sole proprietorship, general partnership
Taxation preferences
Different structures have different tax treatments. Your choice can affect how much you pay and how you file.
- Pass-through taxation: Sole proprietorship, GP, LP, LLP, S corp, most LLCs
- Double taxation: C corp
- Tax-exempt: Nonprofit (if qualified)
- Corporate taxation: LLC (if elected)
Funding and investment needs
Some business types make it easier to raise money through investors or stock sales than others. Choosing one that doesn’t meet your needs or goals could limit your growth potential.
- Best for large-scale investment: C corp, PBC
- Moderate investment potential: S corp, cooperative, LLC
- Limited investment options: Sole proprietorship, GP, LP, LLP, nonprofit (donations/grants only)
Growth and exit strategy
Your structure significantly impacts how easily you can scale, attract new owners, or sell your business.
- High growth potential and easy exit: C corp, PBC, cooperative
- Moderate growth potential and harder exit: S corp, LLC, LLP
- Low growth potential and difficult exit: Sole proprietorship, GP, LP
Final thoughts
The business structure you choose will shape everything from your daily operations to your ability to grow and protect your assets. Taking time to understand the different types of businesses and how each aligns with your goals will help you make a decision that supports your long-term success.
If you’re ready to take the leap but need help getting started, try out GoDaddy Airo. It can help you do everything from naming your business to marketing it and more.
FAQs on business types
What’s the simplest business structure?
A sole proprietorship is the simplest type of business to start. It is owned by one person, requires minimal paperwork, and is easy to register in most states. However, it does not provide liability protection, so your personal assets could be at risk if the business faces debts or legal claims.
How are C corps and S corps different?
C corporations and S corporations both provide liability protection, but they are taxed differently and have different ownership rules. A C corp pays corporate taxes on profits, and shareholders pay taxes again on dividends. An S corp has pass-through taxation, meaning profits are reported on shareholders’ personal tax returns to avoid double taxation. Additionally, S corps are limited to 100 shareholders, and all must be U.S. citizens or residents.
Do I need a lawyer to set up a business?
You do not need a lawyer to start a business, but legal guidance can help you choose the right structure, prepare contracts, and meet compliance requirements confidently.
