A sole proprietorship is the simplest business structure to start and maintain. With a sole proprietorship, one person owns the business and its assets, and is solely responsible for all debts and obligations of the business. In exchange, the business owner can make all decisions and is entitled to all profits.

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A partnership is an arrangement in which two or more individuals combine resources with a view towards sharing expenses and profits. Generally, there are two types of partnerships – general partnerships and limited partnerships. In a general partnership, the partners share in the management of the business and each is personally liable for all debts and liabilities of the business. Limited partnerships limit the liability of each partner to the amount that partner has invested in the business. Limited partners are not personally liable for debts of the business, but are prohibited from participating in the day-to-day management of the business.

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A corporation is another common business structure. Unlike proprietorships and partnerships, the law considers a corporation an entity that is separate from its owners, who are the shareholders. In fact, corporations file their own tax returns independent of shareholders, and corporate losses cannot be used to offset income on a shareholder’s personal tax return.

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Many businesses start out as a sole proprietorship or partnership and later become incorporated as the business grows and becomes profitable. Whether or not your business depends on many factors. If one or more of the following describe your situation, incorporating your business may be a suitable option.

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