Understanding Business Formation Options

Choosing the right business structure is a necessary step in creating a successful, lucrative company, although oftentimes, it’s a step that gets overlooked. Several different business structures exist to provide a precise and dynamic legal fit for various companies. Additionally, your business’s structure influences everything from how much you pay in taxes and the kind of paperwork you must file, to your personal liability protections and ability to raise money. Below, we’ve outlined the four most common types of business formations and which ones work best for certain businesses. 

Sole Proprietorship

A sole proprietorship is a business structure where an individual conducts business under his or her own name and runs the business alone. There is legally no distinction between the business and the individual, and there are very few, if any, filing requirements to start a business under this structure. However, under a sole proprietorship, the business owner has no liability protection, meaning that his or her personal assets may be used to repay certain business debts. 

General Partnerships

Similar to a sole proprietorship, general partnerships typically don’t require filings with the state. However, general partnerships are businesses formed under at least two owners who profit from the company instead of one. This business formation does not protect any of the partners from personal liability for the debts of the business, and an unknowing partner may be liable for the other owner’s fraudulent activities. Of note, working with a knowledgeable business lawyer can help ensure the best solutions for any business agreement.


Corporations generally involve multiple people who conduct business under one body. Often, these business structures have stockholders who own the business and a board of directors to make business decisions. Corporations protect the owners of the company from personal liability, but many liabilities exist if the business is not conducted properly. Consult with an experienced lawyer to be sure your corporation makes a profit and avoids various legal pitfalls. 

Limited Liability Companies

Limited Liability Companies, commonly known as LLCs, combine aspects of sole proprietorships, partnerships, and corporations. Additionally, an LLC is generally the most preferred business structure, as it offers the most flexibility in terms of how the company is organized and conducted. This business formation can be used by any sized business from one-owner operations to companies with several co-owners and can also be taxed like a partnership, corporation, or sole proprietorship. Also, the only assets subject to claims of creditors are those owned in the name of the business, not personal property. 

Understanding these four common types of business formations is a great starting point to determine the best structure for your business. However, more formations exist under these umbrella terms that may better fit your business, such as limited partnerships, series LLCs, and S-corporations. Check out our Business and Corporate Law service page to learn more, and contact the lawyers at Ritter Spencer Cheng PLLC to discover the formation that’s the perfect fit for your business. 

The business lawyers at Ritter Spencer Cheng PLLC, an experienced law firm in Dallas, specialize in business and corporate law and can advise you in choosing the correct entity for your business formation. Our team understands the importance of choosing the most favorable business structure for your company. Contact us today to see how we can work together.