There are several types of business entities available to entrepreneurs and business owners, each of which has legal and tax benefits and consequences. The following is basic information on various business entities.

Sole Proprietorship. A sole proprietorship is owned by one person, typically the person who runs the business on a daily basis. A sole proprietor owns all the assets and profits generated and is personally liable for all the business debts and liabilities. A sole proprietorship is not taxed separately from the owner; the owner declares the business income or loss on the owner's personal income tax return (often referred to as pass-through taxation). Advantages of a sole proprietorship include: it is the easiest and least expensive form of ownership to organize and the sole proprietor is in complete control of the business, receives all income generated by the business, makes all the decisions regarding the business, and takes all profits and losses on his/her own personal tax return. Some of the disadvantages of a sole proprietorship include: sole proprietors have unlimited liability and are legally responsible for all debts of the business exposing their personal assets, the owner may be at a disadvantage in raising funds and is often limited to using funds from personal savings or bank loans, the owner may have a difficult time attracting high-caliber employees who are motivated by the opportunity to own a part of the business, and some employee benefits may not be totally deductible from business income.

General Partnership. A general partnership is an agreement by two or more persons to operate a business together for profit. Each partner has the power to make contracts on behalf of the partnership and these contracts are binding on all of the partners, even if they did not consent. Each partner is personally liable for all of the partnership's liabilities, and a creditor is entitled to collect all monies due to it from any of the partners. Similar to a sole proprietorship, the partners declare their respective shares of partnership income or loss on their individual income tax returns.

Limited Partnership. In a limited partnership, one or more general partners manage the business and are personally responsible for all of the partnership's liabilities. One or more limited partners contribute capital and receive a share of the business profits but are limited in their liability to the extent of their investment and participation. Limited partners do not take part in managing the business, and if they become too active managing the business, they may lose their limited partner status and risk becoming personally liable for the business debts and obligations. As with a general partnership, the partners declare their shares of partnership income or loss on their individual income tax returns.

Limited Liability Company. A limited liability company has members who usually own and manage the business. A limited liability company may also have non-owner managers who run the company instead of its members. This form of business can be established, owned, and operated by a single person. Members are not personally liable for the debts and obligations of the limited liability company. The members declare company income or loss on their individual income tax returns (pass-through taxation).

Corporation. Unlike a sole proprietorship or a partnership, a corporation is recognized for all purposes as a legal entity separate from its owners. A corporation requires a specific structure, and each role within it has limits and obligations. A corporation can be taxed, it can be sued, and it can enter into contractual agreements. The owners (shareholders or stockholders) may be investors who have little say in the management of the corporation and are generally not liable for the debts and obligations of the corporation. Shareholders elect a board of directors to oversee the major policies and decisions and the board of directors elects officers to carry out the business of the corporation. In a smaller corporation, the shareholders often serve as the directors and officers. The corporation has a life of its own and does not dissolve when ownership changes. A “C” corporation refers to a tax designation that most corporations hold. A “C” corporation’s profits are subject to corporate income tax rates. The “S” corporation designation is the alternative to a “C” corporation for tax purposes. The “S” corporation enables the shareholders to treat earnings and profits as distributions and have them pass through directly to their personal tax returns.