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Building a business can be incredibly exciting—until you hit the legal part.
When you start a business, you have to make the monumental decision of selecting a business structure. This is where you decide the type of legal structure you want for your company, which also determines the tax you pay and how you pay it.
It’ll affect the amount of paperwork your business needs to do, the extent of your liability, and your ability to raise money.
The good news is you don’t need an MBA to understand this. Things are very straightforward when explained correctly. Read on as I decode common business structure basics, along with a few useful tools and tips to set you up for success.
A business of structure indicates an organization‘s structure as it is recognized in a given jurisdiction.
Choosing a business structure creates a legal recognition for your trade, where it becomes a key determinant of the activities your business can undertake, including raising capital, paying taxes, and the responsibility for the business’s obligations.
Your business structure trickles down to several factors that are part and parcel of running a business. In addition to enlightening the legal documentation you need, it also clarifies the amount of taxes your organization owes to tax agencies. More importantly, it decides the extent of your liabilities on behalf of the business.
Precisely why before choosing your legal structure, you should carefully consider your needs and goals and understand the features of every business structure.
In the section, I’ll detail the basis of common business structures. By the end, hopefully, you will have a fair idea about which option would be better suited for you.
The sole proprietorship is the simplest business structure, involving one individual who owns and operates the enterprise. Any organization that isn’t registered as otherwise is considered as a sole proprietorship.
For instance, if you make and sell jewelry on Amazon and your website, you’re a sole proprietor. So if you plan to work alone and want total control over operations, this is right up your alley.
But that doesn’t mean there are no legal obligations. You have to figure out the licensing, permits, and regulatory hoops depending on the industry.
A sole proprietorship is appealing for tax purposes because all the income and expenses from the business are included on your personal income tax return, Form 1040. Your profit and losses are then recorded on a form called Schedule C, which you’ll file with your 1040.
From here, the “bottom-line amount” is transferred to your personal tax return. You must also file a Schedule SE with Form 1040.
Sole Proprietorship Pointers
When your business is owned and operated by two or more individuals, it becomes a partnership. Generally, partnerships can be of two kinds: General partnerships and Limited partnerships.
When you’re part of a general partnership, you and the other partners in the company assume full responsibility for the business’s debts and other obligations.
In a limited partnership, there are general partners and limited partners. While the general partners operate the business and are personally liable for the partnership, limited partners are strictly investors. Limited partners have no control over the company and don’t share the same liabilities as general partners.
Let’s explain this with the jewelry selling example on Amazon.
If you bring in your best friend who is equally as good as you in creating jewelry, you won’t be a sole proprietorship anymore—your business is now a partnership.
On the tax front, partnerships have it relatively easy. A partnership business isn’t required to pay tax on its income and is considered a pass-through entity, where any profits or losses are extended to the individual partners. During the tax season, the partnership files a tax return (Form 1065) to report its income and loss to the IRS.
Additionally, every partner has to report their share of income and loss on Schedule K-1 of Form 1065.
Partnership Pointers
A corporation is the first thing that comes to mind when people think of a business structure. It has a complex legal structure comprising shareholders, which also makes tax requirements more intricate and stringent.
There are three different types of corporations: C-Corp, S-Corp, and B-Corp. Each type has its own set of distinct characteristics.
C Corporation or C-Corp refers to the structure where all shareholders combine funds in exchange for stock in a newly formed business. It‘s an independent tax entity in the eyes of the IRS, which means it can file taxes in its name and will get tax deductions.
This business structure has a unique double taxation situation. In addition to the corporation paying corporate income tax at the federal and state level, its owners have to pay personal income tax on any earnings they receive from the business.
S Corporation or S-Corp is similar to a C-Corp except in the tax aspect. In an S-Corp, all income and losses are passed through to shareholders and included in their individual tax returns. As such, there’s just one layer of federal tax that owners must pay.
In other words, you can take your share of profit home without deducting the corporation’s share of tax—something important in the case of C-Corps.
That said, becoming an S-Corp isn’t easy. You have to set your business up as a corporation within your state and then request an S-Corp status (Form 2553).
B Corporation or B-Corp simply means benefit corporation. This can be a viable business structure if your company has a dedicated social mission, with a good cause built into its foundation that you plan to continue pursuing as your company grows.
A B-Corp is just a regular C-Corp that has been vetted and approved for the B-Corp status. Many people prefer to be a B-Corp over a non-profit because of ownership terms. With a non-profit, there are no owners or shareholders, whereas, for a B-Corp, there are still some shareholders who actually own the company.
Corporation Pointers
A limited liability corporation or LLC combines the best of both worlds. You get the flexibility of a partnership with the liability protection of a corporation. The earnings and losses pass through to the owners and are included on their personal tax returns.
An LLC is similar to an S-Corp—but with more attractions.
It offers a combination of legal liability limitation and favorable tax treatment for profit and its transfer. You can have as many shareholders for an LLC as an S-Corp, which has a limit of 100. It’s a new form of legal entity that varies a lot from one state to another. As such, the advisability and benefits of forming this business structure also vary.
Limited Liability Corporation Pointers
I’m going to go ahead and assume you plan on starting a business. Congratulations!
At the same time, you have to be prepared for the never-ending paperwork, legal assistance, and several other steps to kickstart your business. Check out our buying guide for in-depth reviews of the top 11 business formation services today. Below, I have listed three of the best business formation services that can do all the hard work for you, regardless of whether you want to create a single-member LLC, multi-member S-Corp, partnership, or a non-profit.
ZenBusiness is fast, reliable, and diverse. It comes with a wide range of offerings that include incorporation services, LLC services, registered agent services, and DBA.
It comes with a user-friendly interface, which makes it suitable for beginners. However, its biggest USP is arguably the worry-free guarantee that includes two amendments to yearly corporate annual reports.
The other reason why I like ZenBusiness is its affordability. A $39 price point and a free year of registered agent service and accounting assessment—in addition to incorporation—make it even more attractive.
Rocket Lawyer tries to provide the average person a reliable legal service without breaking the bank, and it delivers.
Signing up for this service gives you access to experienced attorneys who can answer all your legal queries within minutes. In addition, it has a lawyer directory that instantly connects you with an expert on a specific legal topic from your chosen state for the best possible guidance.
What’s more, you can contact your assigned lawyer whenever you want during the business incorporation process via call, mail, or chat. The fact you get post-launch care is another hard-to-miss benefit.
LegalZoom is one the most popular business formation services that offer comprehensive legal assistance in all 50 U.S. states.
It has one of the most extensive lists of service offerings that are customized based on your business requirements. You’re directly paired with attorneys who can give personalized advice related to your business structure.
Additionally, LegalZoom offers various services like procuring seller’s permits, business licenses, EIN, state tax ID, and 501(c)(3) applications.
It’s not always easy to decide which structure would be most suitable for you, especially since there are several factors to consider.
As mentioned before, nothing is more straightforward than a sole proprietorship. All you have to do is simply register your name, start your business, report profits and pay
Partnerships need a signed agreement that clearly outlines the roles of every partner, along with their profit percentages. Out of these, corporations and LLCs are more complex since they have different reporting requirements from the state and federal governments.
As for flexibility, your business structure should reflect the kind of growth you envision for your business. Take a long, hard look at your business plan where you’ve mentioned your long-term goals. Select a structure that aligns best with those objectives.
LLC owners and sole proprietors are all liable to pay tax on profit considered personal income at the end of the year. On the other hand, corporation owners only have to file tax returns on behalf of the corporation as well as for all their personal returns through the business for the specific year.
Individuals in a partnership may also claim their share of profits as personal income.
In addition to taxes, you should also be mindful of whether you need specific licenses and permits to operate. This depends on the type of business and activities you indulge in, leading you to be licensed on the local, state, and federal levels.
Therefore, it’s best to determine the ongoing regulation concerning licenses and permits before you start operating.
If the sole control of your business activity is important to you, opting for a brighter ship or an LLC is your best bet. Furthermore, you can also negotiate this control when setting up a partnership agreement.
However, this isn’t possible in the case of a corporation. This business structure is constructed to have a board of directors responsible for making all the major decisions. You can, of course, have a single person control the corporation at its inception, but as it grows, so will its need to operate the business as a board-directed entity.
Once you zero on a business structure for your company, it’s all action from there.
Start by signing up with a reliable business formation service to file the necessary paperwork. Once your company has been formed, you can then focus your efforts on getting more business.
Here are a few more QuickSprout guides to ensure your business’s success:
The best way to form an LLC for the majority of our readers is Incfile because of its low price and straightforward process. Register your LLC in any state starting at $0 plus state fees.
Limited liability companies (LLCs) are a popular option for entrepreneurs nationwide. Unlike other types of business structures, LLCs can be formed in any state, regardless of your company’s physical presence.
Some states offer significant financial advantages compared to others. This guide will take a closer look at the best states to form an LLC and ultimately help you determine the best state of formation for your business.
If you form an LLC in your state of residence (your home state), it’s known as a domestic LLC.
When you form an LLC somewhere other than your home state, you’re required to register that business as a foreign LLC in your home state. To be clear, the term “foreign” has nothing to do with a business being owned by a non-US resident or outside the US. It just means that the company is doing business outside of its home state.
Why is this important?
Starting an LLC in another state might require you to form two LLCs—one in the state of formation and another in your home state.
For example, let’s say you live in Indiana but want to form an LLC in Wisconsin. You’d have to register that company as a foreign LLC in Indiana to do business in your home state.
With two LLCs, you’ll have double everything. That includes two state filing fees, registered agents in both states, two annual reporting fees, and more.
Maintaining two LLCs can quickly double your costs and double your headaches.
You can dive deeper into the differences between foreign and domestic LLCs, to determine which is right for you. And if you’re not sure whether an LLC is right for your business right now, we’ve outlined the differences between an LLC and sole proprietorship and DBA vs. LLC to explain things.
Are some states better to form an LLC than others? Absolutely.
But for the vast majority of people, registering an LLC in your home state will be the best option.
Most people hear or read something online that says, “Nevada has no corporate income taxes,” and assume it’s the right state to form a business. While the former may be true, the latter is not always the case—especially for anyone who lives outside of Nevada. (We’ll talk about Nevada in greater detail shortly).
Why? Remember, you’ll still be required to register a foreign LLC in your home state. So, you’ll still have to pay taxes in your home state, on top of the additional fees required for maintaining two LLCs.
The idea that you can form your LLC in a “no-tax” state, elect to be taxed as a corporation, and not pay income taxes in your home state is essentially misinformation. For most people, your home state will always be the best place to form your LLC. It’s unlikely you’ll be able to save money by registering an LLC elsewhere, and it will likely cost you more money in both the short-term and long-term.
Whether you choose to form an LLC in your home state or in one of the states on this list, we recommend using an LLC formation service to help you get started. You can read our full reviews of the best LLC services here.
With all of that in mind, five states stand out amongst the rest as the best locations to form an LLC, so if you live in one of these states—great.
If you don’t live in one of these states, don’t automatically think it’s a good idea to form an LLC here (for the reasons discussed above). The type of business you’re starting will be a factor, as well. For example, an online-only consulting business with no physical facilities or storefronts could consider forming an LLC outside of their home state. But a retailer with a physical storefront in a shopping center probably wouldn’t have as much flexibility.
Below we’ll dive deep into the pros and cons of forming an LLC in the “best” states.
Delaware has a longstanding reputation for being one of the most business-friendly states in the nation. According to the Delaware Division of Corporations, nearly 67% of Fortune 500 businesses are incorporated there.
While this doesn’t necessarily apply to LLCs, it definitely conveys a draw for organizations to form a business in Delaware. In 2021, 247,003 LLCs and 24,588 LPs/LLPs (limited liability partnership) formed in Delaware compared to 62,510 corporations.
Why?
For starters, the initial state filing fees and franchise taxes are lower than other states. Delaware doesn’t impose taxes on out-of-state income, either. The filing process is simple and allows LLCs to get up and running quickly. The state keeps it easy after that, too, with online filing of LLC taxes and reports.
Another unique standout of Delaware is the Chancery Court. This is one of three constitutional courts in Delaware (alongside the Supreme Court and Superior Court).
The Chancery Court is only for business cases. This means that business-related cases are resolved much quicker than in courts that hear cases in all categories. Plus, the judges in the Chancey Court have much more experience in business hearings.
Delaware doesn’t require shareholders, directors, or officers to be residents of the state. Furthermore, one person can be named in all of these roles. It’s also one of the only states that allows you to exclude your personal identity from the formation documents.
Pros of Forming an LLC in Delaware:
Cons of Forming an LLC in Delaware:
If you live outside of Delaware and want to form an LLC there, it could ultimately be more expensive than starting an LLC in your home state. Aside from having to maintain two LLCs, your administrative costs may also be higher. An accountant in your home state may not be familiar with Delaware structures, so you’d likely have to retain two accountants.
Need help? Visit Incfile to form an LLC in Delaware today.
Nevada is another state that draws a lot of attention from business owners who want to avoid paying high taxes. That’s because Nevada doesn’t impose taxes on personal income, corporate income, or franchise taxes.
With that said, Nevada does require business owners to pay annual license fees and annual filing fees.
In terms of privacy, Nevada is arguably second to none. They are one of the only states that allow for complete anonymity with public filings. In short, your LLC can remain anonymous in any public registration filing.
Furthermore, Nevada does not have an information-sharing agreement with the IRS. Since the state doesn’t have an income tax department, there’s no information to share.
Maintaining an LLC in Nevada is easy since they don’t require annual meetings or operating agreements.
The registration process is simple and also requires fewer steps compared to other states nationwide.
Pros of Forming an LLC in Nevada:
Cons of Forming an LLC in Nevada:
As you can see, forming an LLC in Nevada isn’t always ideal, especially if you’re in another state. You’ll still have to create a foreign LLC in your home state and maintain two registered agents for each LLC.
Need help? Visit Incfile to form an LLC in Nevada today.
Wyoming is another state with policies aiming to be as business-friendly as possible. For starters, they don’t impose strict reporting obligations for business owners.
Similar to other states on our list, Wyoming doesn’t tax personal income or corporate income. There aren’t any franchise taxes either.
Wyoming offers something really unique compared to other states—a lifetime proxy. With a lifetime proxy, you’re able to appoint another person to represent your shares or stock in a company on your behalf. This means that business owners in Wyoming can benefit from complete anonymity.
Aside from no individual or corporate taxes, the sales tax rates in Wyoming are very low.
As you can see from this graph, Wyoming ranks 44th in the country for local tax rates. Of the 46 states that impose sales tax (four states don’t have any sales tax), Hawaii and Alaska are the only two with lower averages.
Pros of Forming an LLC in Wyoming:
Cons of Forming an LLC in Wyoming:
Wyoming is definitely a great state to form an LLC for entrepreneurs who live in the state. But do the pros outweigh the cons if you’re living elsewhere? Your home state will still require a foreign LLC registration, so you can’t avoid taxation altogether.
Need help? Visit Incfile to form an LLC in Wyoming today.
Alaska—the last frontier. While Alaska is best known for its cold weather and thousands of miles of uninhabitable terrain, it’s also a top location to form a business.
The largest state in the Union (and one of the last to join), it is an appealing place to start an LLC.
For starters, there is no state income tax or sales tax in Alaska. However, it’s worth noting that cities can collect local sales taxes (although these are generally low).
Depending on your new business’s industry, you might be entitled to certain tax credits as well. Examples include film production credits, frontier basin credits, new area development credits, qualified oil and gas service industry expenditure credits, minerals exploration incentives, and more. However, most of these require you to actually do business within the state.
Alaska also provides new business owners with great loan programs. In October 2022, the State of Alaska, alongside the University of Alaska and the Alaska Small Business Development Center, announced the launch of a new financing program with $59.9 million in funding. These funds will be available to Alaska small businesses over the next ten years.
But similar to the tax credits, they are intended for businesses operating with a physical presence in Alaska.
The state fees associated with forming an LLC in Alaska are fairly inexpensive compared to other states. Here’s a list of some common LLC fees from the Alaska Department of Commerce, Community, and Economic Development website:
Pros of Forming an LLC in Alaska:
Cons of Forming an LLC in Alaska:
If you live in Alaska and your business operates in Alaska, it’s definitely a great place to form an LLC. But it’s not always a practical solution for out-of-state LLC owners.
Need help? Visit Incfile to form an LLC in Alaska today.
Like other states on our list, South Dakota does not have any state income taxes (a common theme on our list).
Another advantage of starting a business in South Dakota is its 0% corporate tax rate. So, this is a great option for creating an LLC that gets taxed as a corporation. South Dakota has several other tax advantages as well, including no personal property taxes, no inheritance tax, and no business inventory tax.
The filing process is easy, affordable, and can be completed online without strict requirements.
Pros of Forming an LLC in South Dakota:
Cons of Forming an LLC in South Dakota:
Most of the advantages associated with forming an LLC in South Dakota are for state residents and companies operating within the state. Anyone else would still have to maintain a foreign LLC in their home state.
Need help? Visit Incfile to form an LLC in South Dakota today.
Regardless of your state of formation, there are certain expectations for LLC filing that remain constant across the board.
First, expect to pay some type of filing fee to the state. These typically range anywhere from $50 to $500, and payments are due upon filing your Articles of Organization.
Many states also require you to file an Operating Agreement. This is a legal document that explains how your LLC will be run and managed. Even if your state doesn’t require you to file an Operating Agreement during the formation process, it’s still in your best interest to do so, as it will help prevent internal conflicts amongst LLC members.
Be prepared to appoint a registered agent during the filing process as well. You could technically name yourself as the registered agent, but it will make your life much easier if you use a professional registered agent service.
Once everything has been filed, it’s just a matter of waiting until the state officially recognizes your LLC as a legal entity. The exact time varies by state, but the typical range is anywhere from three to ten business days. Most states let you expedite your filing for an additional fee, which can also be facilitated through your business formation service.
LLC formation is not universal from state to state. As you can see from this guide, some states have advantages compared to others for LLC owners.
With that said, it doesn’t mean that you should automatically form an LLC in one of these states.
So, while you may get tax breaks in one state, you’ll still have to pay them in your home state. Plus, maintaining two LLCs comes with its fair share of headaches, like extra fees, multiple accountants, multiple lawyers, and multiple registered agents.
In most cases, the pros won’t outweigh the cons when it comes to forming an LLC in a state other than your own. As always, consult with your accountant and attorney before deciding where to form an LLC.
Our top recommendation for people looking to create a new DBA or LLC is ZenBusiness, because it is a fast …
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I live and work in beautiful BC Canada.
I am a DBA, Data & Application analyst who is new to developing in PHP. I look forward to learning much from this community while on my current project and eventually contributing.
It's challenging to troubleshoot issues in a distributed database because the information about the system is scattered in different machines.
TiDB is an open-source, distributed SQL database that supports Hybrid Transactional/Analytical Processing (HTAP) workloads. Before version 4.0, it could be difficult to efficiently troubleshoot TiDB's system problems. To diagnose a TiDB cluster's issues, even an experienced database administrator (DBA) needed to understand TiDB's basic architecture, get familiar with thousands of TiDB monitoring metrics, and gain experience in the field to ensure that when they encountered similar problems next time, they could fix them more quickly.
Disruption has come to the role of the database administrator (DBA). Automation is eating up tasks typically completed by a DBA — and the technology is evolving to become ever-smarter, ever more capable.
This has sparked concern that humans will inevitably become redundant in running databases. Already, cloud services have threatened to render the DBA role obsolete. Now, with automation infiltrating more and more areas of database administration, many have predicted that DBAs will not survive the storm of change.
I’ve been reading about the death of the DBA ever since I first made the jump from full-time developer to full-time data professional. The first time I heard it was when SQL Server 7.0 was released. Did you know that SQL Server 7.0 was self-tuning? In fact, it was so self-tuning that the DBA is a relic of the past and no one will be paid for that kind of work anymore.
Right.