​Available Business Structures in USA and their Benefits and Pitfalls

Posted by Cory List on 28th Jan 2015

Choosing an appropriate business structure and benefits in USA may be challenging especially for individuals who are new to setting up a business. Nevertheless, having an idea about the basics of US business structures may help business owners decide which structure is the most appropriate for them. This will give them a better perspective on the potential profitability as well as whatever liability they can be held accountable for in their business operations.

Sole Proprietorship

This is a type of business structure and benefits in USA that is easy enough to set up especially for new entrepreneurs. The set up requirements and costs make it more manageable for businessmen with limited capital. Among the benefits of this type of business is its less stringent tax filing requirements. Any business profits earned by the owner will be considered his personal income and should be filed as an income tax. There is no need for the owner to file separately for a business or corporate tax. In 2013, rates for income tax range from 10% to almost 40% depending on the owner’s income.

Another benefit of this structure is the sole liability of owner to the business. This means that any income gained by the business belongs only to the owner. There are some disadvantages to having this business structure and downfall in USA is still possible. It places the owner at risk of unbounded responsibility in case the business takes a negative turn. In this scenario, there is no other business partner to consult or share the responsibility with.

In general, this type of business structure and benefits in USA is considered appealing by individuals who are starting a business for the first time. While it is easy enough to set up, difficulties in sustaining this business structure in the US could pose challenges for the owner especially when he has limited capital to spend on operating expenses.


When two or more individuals collaborate and start a profit generating business, it is considered a partnership. In this business structure and benefits in USA, the overall management of the business is shared among the partners. Not only is the business capital and resources shared in this type of business structure, but also the losses and negative returns. Similar to sole proprietorship, the owners risk vulnerability in case of a business downturn.

Meanwhile, the advantages of this business structures and benefits in USA is that decision making, especially those that entail critical business results, is a collaborative effort of all partners. Different from the sole proprietorship, owners following this structure can shift to a consultative and advisory position when it comes to managing the business.

As for its tax guidelines, a business on partnership structure is not taxed. Instead, the business partners are taxed individually based on their shared income. Similar US income tax rate applies to this business structure as that of sole proprietorship.

Overall, this type of business structure and benefits in USA is suitable for entrepreneurs whose resources have to be combined with others entrepreneurs. However, partners involved in this type of business structure should be careful in managing the business so as not to cause the other partners unnecessary loss or debts.

Limited Liability Company (LLC)

This type of business structure may sound favorable to most of the entrepreneurs as this generally spares the owners from further liability apart from what they have invested in the company. This type of business structure and benefits in USA is often utilized by business owners looking for some form of protection.

Structure wise, LLC businesses are not required to establish strict organizational policies. This kind of flexibility allows its owners to form, within their liberty, officers or committee to oversee the business. Its flexibility extends to the structure’s undefined number of members or shareholders.

For its tax return, LLCs are not required to pay corporate tax. Instead, owners or shareholders are mandated to individually pay their income tax for received shares. Notice that this follows similar tax return guidelines for sole proprietorship and partnership business structures and benefits in USA.


These are large-scale enterprises registered under the US government. Its ownership and management belongs to the members of the corporation or its shareholders. Each member’s shares in the company dictates their extent of ownership and autonomy in the corporation. Usually, the decision making power of its members is determined by their amount of shares. This gives owners limited responsibility for any company loss or debt.

Establishing a corporation entails higher cost compared to other business structures and benefits in USA.Apart from the fees and taxes, certain administrative and operational requirements tend to be intricate. For this reason, it is common to see businesses with enough number of employees transforming into a corporation. Having employees to work on the intricate requirements of setting up a corporation is definitely an advantage for businesses. On the flip side, small businesses may see this as a challenge when they consider expanding or changing their business structure into a corporation.

Unique to a corporations its option of being able to offer or sell selected stock shares whether to the private investors or to the public. This allows the business to further generate income.

On the other hand, the disadvantage of this type of business is its tax return requirement. Different from other structures, the government requires tax returns both for profits and dividends paid out.