Choosing the Right Business Structure: LLC, Corporation, or Partnership?

Meeting to discuss choosing the right structure for a new Connecticut business: LLC, Corporation, or Partnership. Visual concept for legal advice blog.

Choosing the right business structure for your new venture is a crucial step in getting started off right. Your business’s legal structure can affect everything from your liability as a business owner to how your taxes are filed. If you are trying to decide between an LLC, corporation, or partnership, here are some things to consider.

Why is Choosing the Right Business Structure Important?

It is the unfortunate truth that many business owners open for business without placing any serious consideration on choosing the right business structure. They often default to the least protective business structure when they could gain far more protection simply by speaking with a business attorney as they work to establish the company. A business lawyer can help you and your business partners choose a structure that will strike the right balance between control, flexibility, liability protections, and tax obligations.

Personal Liability for Corporate Debts and Lawsuits

One of the biggest benefits for business owners to choosing the right business structure is being able to limit their personal liability for corporate debts and lawsuits. Some business structures create “corporate veils” between the business and its owners, allowing the company to take many types of risks without putting the business owners’ personal homes, property, and retirement assets on the line. However, these structures trade protection for oversight and complexity. Depending on the industry, there may be reporting requirements, annual filings, and licensure necessary to give adequate protections.

Tax Considerations in Choosing a Business Structure

Some highly formalized business structures, such as corporations, can result in “double taxation” where the company pays taxes on its profits and then the business owners pay taxes on income received from that company. Businesses in their formative stages may try to choose a business structure that eliminates double taxation until the benefits from those structures outweigh the costs. Corporations and multi-person LLCs must also file separate corporate tax returns, which can increase the cost of tax professionals. However, people operating in less formal structures may have to pay self-employment taxes where others using more formal structures do not.

Rightsizing Your Paperwork and Funding Options

Choosing the right business structure also means considering the necessary licenses, permits, regulations, grants, and business loans that you will need to operate your company. For example, the Connecticut Secretary of State requires you to register your business name or trade name (sometimes called “doing business as” or DBA name). But sole proprietors and partners who are operating their own name can skip this registration requirement. In addition, many funding options are only available to specific types of business entities. You will want to work with your business attorney to consider these implications and choose a structure that will open as many doors as possible for your business.

What are the Different Types of Business?

Before you can begin choosing the right business structure for your new business, you need to understand your options:

Sole Proprietorship

When a single person goes into business for themselves, the default business structure is a “sole proprietorship.” Because it takes so little effort to set up (or wind down), a sole proprietorship is one of the most common small business structures. However, it also provides very little protection for you as a business owner.

Ownership: Limited to a single owner

Liability: Unlimited personal liability

Taxes: Pass through to the owner (without a separate business tax return)


A partnership is essentially a sole proprietorship with more than one owner. Partnerships can be “general” – with each partner having an equal share – or “limited.” In a limited partnership, one person generally manages the operations of the company, while the other partners contribute and receive a share of the profits. They are slightly more difficult to set up and manage than a sole proprietor because they require the execution of a partnership agreement, and are treated differently for tax purposes.

Ownership: Two or more owners


  • General Partnership: Unlimited personal liability
  • Limited Partnerships: Limited partners’ liability is capped at their contribution to the business

Taxes: Partners must report business income on their personal taxes and may have to pay self-employment taxes


A corporation is a separate legal entity that operates independently from its owners. Business founders and others hold stock in the corporation and are entitled to dividends out of the company’s profits. However, they have comparatively little control over how the business is run. There are several types of corporations:

  • C Corporations are usually larger businesses with an unlimited number of investors.
    • Ownership: One or more shareholders
    • Liability: No personal liability
    • Taxes: Corporate tax returns with owners reporting dividends received as income
  • S Corporations are generally small businesses and operate similarly to a partnership or LLC (discussed below).
    • Ownership: One to 100 U.S. citizen shareholders
    • Liability: No personal liability
    • Taxes: Shareholders report business income on their personal tax returns
  • Non-profit Corporations are tax-exempt entities that focus on public service or public interest issues, rather than profit.
    • Ownership: One or more shareholders
    • Liability: No personal liability
    • Taxes: Tax-exempt, but profits can’t be distributed to shareholders
  • B Corporations are for-profit businesses that commit to a “triple bottom line” or other forms of corporate social responsibility.
    • Ownership: One or more shareholders
    • Liability: No personal liability
    • Taxes: Corporate tax returns with owners reporting dividends received as income

Shares in corporations can be openly traded on the stock market, or they can be “closed” or “closely held,” meaning that the business owners privately retain control over the business. All forms have a rather rigid structure, including a board of directors. There are also additional filing requirements and tax considerations that can make them less desirable when choosing a business structure.

Limited Liability Company (LLC)

A limited liability company (LLC) is a hybrid business structure that allows members (owners) to limit their personal liability without the rigidity of a corporation. There are also Limited Liability Partnerships (LLPs) that are similar to LLCs, but used for licensed professions like doctors, lawyers, and accountants. An LLC’s profits and losses can be divided between shareholders based on an operating agreement, either equally or in proportion to their contributions to the company. LLCs also benefit from many of the same tax advantages of less formal business structures, while shielding shareholders from being personally sued by the company’s creditors or unhappy customers.

Ownership: One or more members

Liability: Owners are not generally personally liable (except for malpractice actions in LLPs)

Taxes: Can be personal or corporate tax returns depending on the filing election made during the business formation. Members may be responsible for self-employment taxes.

Get Help Choosing the Right Structure for Your Business in Connecticut

There is no single right answer to choosing the right structure for your Connecticut business. You should start discussions with an experienced attorney early in the business formation process, before the choices you make close doors or force you to pay taxes or debts you could have avoided.

At Lawrence & Jurkiewicz, we focus our practice on helping people. We know how to help entrepreneurs and business owners make the right decision in setting up their new business entity. We will meet with you to review your business plans and financial circumstances and help you choose the right business structure for your new venture. We want to help you make the right decision for you, your business, and your family. Please call (860) 264-1551 or contact us for a consultation.

Categories: Business Law