The Entity You Pick Matters… Sort of

(But really, you just need to get started)

Pick the right structure for your business—without law school.

If you’re about to start a business, this is one of the first decisions you’ll make—and one that trips up a lot of first-time owners.

Sole Prop. LLC. S-Corp. C-Corp.

Most people don’t know the difference. So they ask a buddy. Or worse, guess.

Let’s fix that.

This is your plain-English guide to the four main types of business entities, what they mean, how they work, and when to use each. By the end of this, you’ll know exactly which one fits your goals.

One quick note before we dive in—don’t get stuck naming the damn thing.
Your logo, your brand, your website—all of it can evolve. But if you never start? You’ve got nothing to evolve from. File the paperwork, open the account, and get to work. Momentum beats perfection.

1. Sole Proprietorship

What it is:
The default. If you’re operating a business under your own name and haven’t registered anything, congratulations—you’re already a sole proprietor.

Pros:

• Easiest to start—no paperwork (unless you need a local license)
• Simple taxes—profits get reported on your personal tax return
• No separate bank account required (though you should have one)

Cons:

• No liability protection. If your business gets sued, your personal assets are on the line
• Harder to get business loans or insurance
• Not taken as seriously by vendors or customers

Use this if:
You’re testing the waters. Walking dogs for cash. Selling handmade soaps online. Freelancing without major exposure. Just know—if a client trips on your front steps, it’s your house on the line.

Don’t use this if:
You’re working with tools, trucks, or customers on-site. The second someone slips and falls, your personal savings are exposed.

How You Get Paid:
You take an “owner’s draw.” Whatever’s left after expenses is yours to transfer into your personal account.

Tax Treatment:
You’re taxed on profit through your personal return. No separation.

2. LLC (Limited Liability Company)

What it is:
The most common choice for small business owners. It creates a separate legal entity—that’s the key. Your business is now legally distinct from you.

Pros:

• Liability protection—your house, car, and savings are shielded
• Flexible—can be taxed as a sole prop, partnership, or S-Corp later
• Easy to set up—one-time filing with the state
• Makes you look like a real business—because you are

Cons:

• You still pay self-employment taxes (unless you elect S-Corp status later)
• Annual fees and reports required in most states
• Not ideal if you plan to raise big money from investors

Use this if:
You’re a contractor, tradesperson, service provider, or anyone working with people, property, or equipment. You’re serious, and you want protection.

Don’t use this if:
You’re looking to take on investors or go public (use a C-Corp for that). Otherwise, this is your go-to.

How You Get Paid:
Same as a sole prop—draw from business profits.
Elect S-Corp? You’ll need to run payroll and pay yourself a W-2 wage.

Tax Treatment:
Default: taxed like a sole prop (single-member) or partnership (multi-member).
Elect S-Corp: you pay self-employment tax only on wages—not on distributions. Requires payroll setup.

Heads-up:
In most states, LLCs are required to file an annual report and pay a small fee. It’s simple—just don’t ignore it, or your LLC could get administratively dissolved.

3. S-Corporation

What it is:
A tax election, not a separate entity type. You first form an LLC or C-Corp, then file IRS Form 2553 to elect S-Corp status.

Why it matters:
S-Corps can save you money on self-employment taxes. But there’s a catch.

Pros:

• Big tax advantage once you’re making solid profits
• You pay yourself a “reasonable salary,” then take the rest as distributions (which aren’t hit with self-employment tax)
• Can still have liability protection (as an LLC taxed as an S-Corp)

Cons:

• More paperwork
• You have to run payroll—even if it’s just for yourself
• The IRS can audit your salary if it’s too low
• Not worth it if you’re not making at least $40k–$60k in profit

Use this if:
You’re already profitable and want to cut down your tax bill. You’ve got bookkeeping in place, or you’re willing to pay for it.

Don’t use this if:
You’re just starting out, not making consistent profits yet, or don’t want to mess with payroll and formal structure.

Quick Tax Comparison:

• LLC (default): simple pass-through taxes
• LLC taxed as S-Corp: pay yourself a wage, take the rest as distributions
• C-Corp: taxed twice—once at the corporate level, once on your salary/dividends

4. C-Corporation

What it is:
A separate legal and tax entity. The business pays its own taxes. You (the owner) also pay taxes on your salary and dividends.

Pros:

• Built for raising capital or selling shares
• Preferred by investors and venture capitalists
• Can have multiple classes of stock, institutional structure
• Flat corporate tax rate (currently 21%)

Cons:

• Double taxation—business pays tax, then you pay tax on what you take out
• More paperwork, more compliance
• Overkill for most small service businesses

Use this if:
You’re building a high-growth startup with plans to raise money, give stock options, or sell to a major buyer.

Don’t use this if:
You’re a solo operator, tradesperson, or service company. C-Corps are a tool for the big leagues—not for your first job trailer.

Bonus: DBA (Doing Business As)

What it is:
A name registration—not an entity. If your LLC is “Hernandez Services, LLC” but you want to market as “Elite Concrete Pros,” you’d file a DBA.

Pros:

• Lets you run multiple brands under one LLC
• Simple to file (state or county level)

Cons:

• Doesn’t provide any protection—just a name

Use this if:
You want to operate under a different name than your legal entity.

Note:
Filing a DBA doesn’t create a new business or give you any legal protection. It just gives you the right to use that name in commerce. You still need to operate under a valid entity.

Can I Change Later?

Absolutely. Your entity choice isn’t permanent. You can start as a sole proprietor or single-member LLC and evolve into an S-Corp or C-Corp as the business matures.

That’s often the smart move: keep it simple, then upgrade when the revenue and risk justify it. Just know that changing later can mean new paperwork, tax filings, and compliance rules—so build clean from day one.

Quick Decision Table

Final Word

Don’t get paralyzed picking the “perfect” structure.
If you’re running a real business—clients, customers, equipment, risk—start an LLC.
If you’re dabbling, testing, freelancing? Fine. Start as a sole prop and level up when the time comes.

Either way: move. Because until you do?

You’re not building a business.
You’re just talking about it.