When starting a new business, one of the most important decisions you’ll face is how to structure it legally. The right entity—whether an LLC, S Corporation, or C Corporation—can impact your taxes, liability, and long-term success.
But with deadlines, state-specific rules, and tax implications to consider, it’s not a one-size-fits-all choice. Here’s what every business owner should know when choosing the right legal structure in 2025.
Understanding Your Options
Most small businesses operate under one of five common legal structures:
- Sole Proprietorship
- Partnership
- Limited Liability Company (LLC)
- S Corporation (S Corp)
- C Corporation (C Corp)
Each option comes with its own pros, cons, and administrative requirements. Let’s break them down.
Sole Proprietorships & Partnerships
These are the simplest and most cost-effective business structures to set up. No formal filing is needed to operate—though you’ll still need a business license or permit, depending on your location.
But there’s a catch: no liability protection. That means your personal assets (such as your home or savings) could be at risk if your business faces a lawsuit or debt.
LLCs, S Corps, and C Corps
These formal business structures offer liability protection—but come with more paperwork and compliance requirements.
C Corporation
- Pays corporate taxes on profits.
- Shareholders also pay tax on dividends—resulting in double taxation.
- Often used by larger companies and startups seeking investors.
S Corporation
- Offers pass-through taxation, so profits and losses are reported on your personal tax return.
- Must file Form 2553 with the IRS by March 15 of the tax year to elect S Corp status.
- Avoids double taxation but has restrictions on shareholders and stock classes.
Missed Deadline Tip: Missing the March 15 deadline for S Corp election could cost your business thousands in tax savings.
Limited Liability Company (LLC)
- Provides liability protection with less red tape than corporations.
- Flexible tax options: Can be taxed as a sole proprietorship, partnership, C Corp, or S Corp.
- A popular option for freelancers, startups, and small businesses.
Real-Life Lessons from Business Owners
Startup costs and timing missteps often affect a new business’s structure.
AmyLynn Keimach and Kenneth Tran, founders of Border7 Studios, hoped to register as an S Corp but couldn’t afford the upfront costs. Instead, they remained a general partnership—and are now exposed to personal liability.
“If a client sues us, they can come after everything we personally own,” says Keimach. “That’s terrifying.”
Similarly, Jennifer Chu of Chu Shu learned a hard lesson when she missed the S Corp election deadline. As a result, her business couldn’t benefit from the pass-through taxation for that tax year.
Do You Need a Lawyer? Not Always
While hiring an attorney or CPA is the gold standard, it’s not always in the budget. Services like MyCorporation.com, BizFilings.com, and LegalZoom.com allow entrepreneurs to file formation paperwork quickly and affordably—often starting at $95 to $200.
For instance, Rick Dunaj formed his LLC using MyCorporation after receiving a $6,000 quote from a lawyer. “I needed to conserve every dollar. Going online was the best decision,” he says.
Final Thoughts: Choose Wisely, Plan Ahead
Choosing the right business structure involves more than just paperwork. It affects your taxes, legal exposure, and ability to grow.
Before you decide:
- Assess your income goals
- Understand your liability risk
- Know your tax deadlines
- Plan for future growth or investors
Need help deciding? Contact Diamond Tax & Financial today. We’ll walk you through your options and make sure your business is structured for success—saving you time, money, and stress.