When it comes to launching a new business, there are several factors you should consider during the initial planning process. One of the first steps you should take is to create a business plan. Once your business plan is out of the way, it’s time to consider how you will organize your business. What type of legal business structure should you choose?

There are various legal business structures to choose from. Where you will be operating your business can determine the types of structures that are available to you. And, the structure you choose will determine whether you need to register your business with the state, what forms you will need to file to establish your business structure, and your business/personal tax liability.

Although some will differ, most states offer 4 standard business structures for you to choose from. Those structures are sole proprietorship, partnership, corporation, and limited liability company (LLC).

Lets take a moment to discuss the four most common business structures used today.

1. Sole Proprietorship

Sole proprietorships are the most commonly used business structures, probably due to how simple they are to set up or dissolve, if necessary. To be a sole proprietor means you operate a business alone, “solely,” by yourself. The costs associated with setting up a sole proprietorship are minimal.

With this type of business structure, the business owner (aka sole proprietor) is personally responsible for the debts incurred by the company and any tax liability. And, sole proprietors are unable to take advantage of the various tax breaks received by limited liability companies (LLC’s) and corporations (Inc’s).

Additionally, your company’s name is not protected when you operate as a sole proprietorship.

2.  Partnership

A partnership is an unincorporated business structure. And like a sole proprietorship, it is fairly simple to set up, although probably not always as simple to dissolve. To be a partner in a business means that you are one of others (at least one but possibly more) that has ownership in the business. Under a partnership structure, the business owners (aka partners) are personally liable for all business debts and taxes. This is another business structure that does not protect your company name.

3.  Corporation

A corporation is a legal entity and must be incorporated with the state. There are two types of corporations: C-Corporation and the S-Corporation. With a C-Corporation the corporation is responsible for the business debts, taxes and other liabilities, and the business owner is not held personally liable. In contrast, an S-Corporation allows up to 75 shareholders to share the corporation’s business debts and tax liabilities, and permits them to report the corporation’s income on their personal income taxes.

4.  Limited Liability Company (LLC)

The LLC business structure has became more popular over the past few years. It possesses elements from both the partnership and corporation structures and is often referred to as a “hybrid” structure.

Like a partnership, an LLC can have several members and shareholders. And, when it comes to paying taxes, an LLC can choose whether it wants to be taxed as a corporation or as a partnership. Unlike partnerships and sole proprietorships, an LLC must register with the Corporations Divisions in the State of Florida and the company name is protected.

Each of the four business structures mentioned above has its own advantages and disadvantages. What you have in mind for your overall business will help you determine which structure is the best option for your new venture.