Choosing a Business Entity: How Do You Decide?

Image courtesy of user Geralt on
Image courtesy of user Geralt on

This is an excerpt from a presentation I give to college students and to prospective entrepreneurs about types of business entities.

A college professor (who’s also an attorney) told me that my presentation on this subject is the best, clearest and most-concise overview of the topic that she’s ever seen.

I’m flattered by the compliment, and will try to translate those positives into a series of blog posts.


Over the course of more than 6 months and 9 parts, I’ve given an overview of the tax aspects of business entities.

The thing that I haven’t given is advice on how to choose what type of entity to be.

That’s because there’s no magical checklist for deciding. But here are a few considerations.

  • How much liability protection do you need? In some cases, staying a sole proprietor but having a good liability policy in place may be your best move. This is a conversation to have with an attorney.
  • How much income will you have? How does this compare with the salary you could get doing similar work as an employee? (This is important because you might want to incorporate if you have enough income to pay yourself a salary.)
  • How many investors will you have? What type of investors will you have? (Will they all be individual US citizens? Will there be other business entities who will become investors?)
  • Will you be keeping most of your profit inside the business? In that case a C-corporation may make the most sense.
  • Will you have real estate, such as land or buildings? LLCs are usually best for holding real estate, rather than corporations.

As you can see, the decision of choosing a business entity is not a simple check-box thing. It involves thought and input from multiple advisors, including your accountant and attorney.