Small Business: Forms of Business Chart

Form of businessLegal filingsTaxationStructureAdvantagesDisadvantages
Sole proprietorship

Required licenses and registrations

Personal rates, filed using Schedule C on Form 1040

Business ceases when proprietor leaves the business

Easy to set up

Does not protect against personal liability


Assumed name filing, required licenses and registrations

Profit shared by partners at personal tax rates

Dissolves when a partner leaves

Fairly easy to set up; partnership agreement recommended

Does not protect against personal liability

Only partial deduction for health expenses

C corporation

Annual reports

Board of directors meetings

Separate tax return, taxed as separate entity

Corporate tax rates

Dividends taxed to shareholders

Perpetual existence

More than one class of ownership are possible (e.g., common and preferred)

Can protect against personal liability of individual shareholders regarding claims against the business

Corporate tax rate is higher than individual

Double taxation of dividends

Additional administrative costs

S corporation

Similar to C corporation

Taxed at individual rate, Form 1040, Schedule C, E, and SE

Form 1120S, Income Tax Return for S Corporation and Form 1120S K-1
Must close books at end of year

Similar to a C corporation except must meet certain requirements to be treated as an S corporation

Eliminates double taxation of dividends

Cannot deduct benefits such as health insurance for shareholders owning 2% or more of the company
Cannot own subsidiaries
Cannot retain earnings
Typically fiscal year must be a calendar
No more than 35 shareholders


Exempt from corporate filings in most states
Operating agreement required

Taxed at individual rate, Form 1040, Schedule C (need approval of IRS)
Usually more accounting flexibility than C or S corporations

Somewhat of a hybrid between an S corporation and a C corporation

Taxed at personal rate
Limited liability as a corporation

Our use of cookies

We use necessary cookies to make our site work. We would also like to set some optional cookies. We won't set these optional cookies unless you enable them. Please choose whether this site may use optional cookies by selecting 'On' or 'Off' for each category below. Using this tool will set a cookie on your device to remember your preferences.

For more detailed information about the cookies we use, see our Cookie notice.

Necessary cookies

Necessary cookies enable core functionality such as security, network management, and accessibility. You may disable these by changing your browser settings, but this may affect how the website functions.

Performance cookies

We'd like to set cookies to help us to improve our website by collecting and reporting information on how you use it. For more information on these cookies, please see our cookie notice. The cookies collect information in an anonymous form. Data is only used in aggregate.

Functionality cookies

We'd like to set cookies to provide you with a better customer experience. For more information on these cookies, please see our cookie notice.