Business Entity Formation


Business Entities: What are they & what are the different types?

Every entrepreneur should be familiar with the term “business entity.” When you start a new business, there are several types of business entities to choose from. While some are simple to set up, others are more difficult to start and maintain. With each type of entity comes a specific method for taxation, management and liability. At Angelino Law, we help you determine the type of business entity that best suits both you and your company.

Types of Business Entities

The four basic types of business entities are:

Sole proprietorship



Limited liability corporation
In general, proprietorships and partnerships offer the least amount of protection, and corporations and limited liability corporations have the greatest amount of protection. Since different businesses call for different types of entities, hiring an attorney to help determine the best option is integral to protecting your company.

Sole Proprietorship

Sole proprietorships are by far the easiest types of businesses to start up and are the first choice for most small, at-home businesses. As many home-based businesses grow, they often move on to a different type of business entity.

For a sole proprietorship, you’ll simply need a business license, along with any other credentials required by your local government. This will allow you to open a business bank account and begin operations. Any income that you earn through your business will be reflected on your personal tax return. The owner of the business has complete liability for both himself and all employees.


The two types of partnerships to choose from are general and limited. Partners split the business’ income based on what’s outlined in the startup paperwork. All of the partners are liable for each other and income is reflected on each partner’s tax return. In a limited partnership, an individual can provide funds, but does not provide any services.


Corporations can have one of two types of designations:

C, which allows for corporate tax returns.

S, which allows for personal tax returns.
When the business owner files the articles of incorporation with their local government, he’ll have to choose either C or S for the corporation designation. For most small businesses, an S form is the better choice. Both types of corporations come with complete liability coverage, which protects individual assets in the event of business troubles.

Limited Liability Corporation

A limited liability corporation is a cross between a partnership and a corporation. Business income is taxed on personal tax returns, which means that the business owners save money. Each partner may be limited in their business actions according to how much they’ve invested in the company. This type of business is the most complicated to set up, and it’s not recognized in all governments.

For more information about business entities and for help setting up your business, contact Lorenzo Angelino at (845) 214-1133 or