Key takeaways:
- Choosing the right business structure impacts taxes, liability, and growth.
- The four core types of business structures are sole proprietorship, partnership, LLC, and corporation.
- Each business entity offers unique benefits and risks — the best choice depends on your goals.
Starting a business involves more than having a great idea. You need to set the right foundation from the start. One of every entrepreneur’s first decisions is choosing the type of business to register. This choice affects how you pay taxes, what legal protections you have, and how you raise money or expand in the future.
About 80% of small businesses survive their first year, but only around 50% reach the five-year mark — a reminder of how critical early decisions can be.
This simplified guide serves as a starting point for understanding the most common types of business. You will learn about sole proprietorships, corporations, nonprofits, franchises, and online-first models. Each section shows how they work so you can choose the structure that fits your goals.
Why choosing a business structure matters
A business structure does more than define ownership. It lays out the requirements or guidelines on how you register, keep records, and interact with customers, lenders, and partners. It can also affect your ability to get funding or qualify for tax benefits.
Different business categories serve different goals. Some are designed for solo founders who want a simple setup. Others exist for groups that need to share responsibilities or attract investors.
Choosing carefully at the start prevents legal and financial problems later. It also makes it easier to plan for growth, bring in partners, or adjust your strategy as the business evolves.
13 types of businesses you need to know
When people talk about “business types” or “business structures,” they usually mean the legal framework that defines ownership, liability, and taxation. These structures form the foundation of your company and influence how you operate and grow.
However, business types can also describe how a company is set up to sell products, deliver services, or pursue a mission.
The 13 business types below cover common legal structures (like LLCs and corporations) and business (operational) models (like retail, manufacturing etc). Understanding them should help you build a business that’s legally sound and strategically aligned.
Business types according to legal structure:
- Sole proprietorship
- Partnerships (General, LP, LLP)
- Limited Liability Company (LLC)
- Corporations (C Corp, S Corp, Close Corporation, Public Benefit Corporation)
- Nonprofit organization
- Cooperative
- Joint ventures
Business types according to business model:
- Franchise
- Service businesses
- Retail businesses
- Manufacturing businesses
- Online businesses
- Hybrid businesses
Important: This article is for information purposes only and shall not be taken as legal advice. Business structures and their legal/tax implications may vary depending on your country or region. Please consult a legal or financial advisor for your specific jurisdiction.
1. Sole proprietorship
A sole proprietorship is the simplest and most common business type. One person owns and manages the company, and there is no legal separation between the individual and the business.
It is easy to start, requiring minimal paperwork and allowing immediate operation, although local licenses may be needed. The owner retains full control over decisions but may face challenges raising capital since ownership shares cannot be sold. This structure suits low-risk ventures or those testing ideas before evolving into more complex forms like LLCs or corporations.
Recommended for: Freelancers, consultants, independent service providers, and small shop owners testing a business idea.
2. Partnerships (general, LP, LLP)
A partnership involves two or more people sharing ownership. It can take several forms: general partnership (GP), limited partnership (LP), and limited liability partnership (LLP).
These require partnership agreements to define profit-sharing, decision-making authority, and dispute resolution procedures. This structure works best when partners bring complementary skills and resources, making them ideal for professional services, consulting firms, and investment ventures where combined expertise creates value beyond what individual practitioners could achieve alone.
Recommended for: Professional firms (law, medical, accounting), small agencies, and businesses built on combined expertise.
3. Limited liability company (LLC)
An LLC blends elements of partnerships and corporations. It offers personal liability protection while keeping management flexible.
LLCs are ideal for service businesses, real estate investments, and small to medium-sized companies that want personal asset protection without the administrative burden of corporate governance structures, making them particularly suitable for entrepreneurs who don’t need to raise significant outside investment but want more protection than what sole proprietorships or partnerships provide.
Recommended for: Small to midsize businesses, startups, and service companies that want liability protection with fewer formalities.
4. Corporations (C Corp, S Corp, Close Corporation, Public Benefit Corporation)
A corporation is a separate legal entity from its owners. It provides the strongest liability protection and can raise money by issuing shares of stock.
The main types include:
- C Corporations: Unlimited shareholders, double taxation, maximum capital-raising flexibility).
- S Corporations: Pass-through taxation but limited to 100 U.S. shareholders with one stock class.
- Close Corporations: Simplified formalities for small shareholder groups.
- Public Benefit Corporations: Balancing profit with social/environmental missions.
Corporations require extensive formalities like regular meetings, detailed record-keeping, and complex tax filings. They offer perpetual existence, enhanced credibility, and better capital-raising abilities through stock issuance, making them ideal for high-growth businesses, companies in high-liability industries, or ventures planning to go public or seek significant investment.
Recommended for: High-growth startups, established companies planning to scale, and mission-driven businesses that want to balance profit and social impact.
5. Nonprofit organization
A nonprofit operates to achieve a mission rather than generate profit for owners. Many qualify for tax-exempt status if they meet government requirements.
It’s usually run by a volunteer board and must reinvest all income back into its mission instead of distributing profits. Nonprofits can gain tax-exempt status by meeting government rules, allowing them to avoid federal income tax on related revenues and offer tax deductions to donors. They rely on diverse funding sources like donations, grants, and fees, must follow strict regulations on governance, transparency, and political activities, and file public financial reports.
Recommended for: Charities, educational programs, religious groups, and community-based initiatives.
6. Cooperative
A cooperative (co-op) is owned and run by its members, who share decision-making and profits. It focuses on benefiting members rather than maximizing profits for outside investors, with decisions made collectively.
Co-ops come in various forms (e.g., consumer, worker, producer, and housing etc.) and often support local communities by keeping control and benefits within the group. This model works best when members share common needs and actively participate in managing the business together.
Recommended for: Grocery co-ops, worker-owned businesses, credit unions, and agricultural groups.
7. Joint ventures
A joint venture is a temporary or project-based business arrangement where two or more companies work together. They pool resources, share risks and profits, and combine strengths like capital or expertise to achieve something they couldn’t normally do alone.
Joint ventures often involve entering new markets, developing technology, or sharing costly infrastructure. Their success depends on clear agreements, strong communication, and aligned goals, making them ideal for projects needing complementary skills or shared investment without full mergers.
Recommended for: Companies expanding internationally, real estate development projects, and businesses collaborating on specialized products or technology.
Now that we’ve covered the main types of business according to legal structure, let’s move on to briefly cover business models.
8. Franchise
A franchise allows entrepreneurs to operate under an established brand and business system in exchange for fees and royalties.
Recommended for: Entrepreneurs who want reduced startup risk, proven business processes, and brand recognition without building from the ground up.
9. Service businesses
Service businesses provide expertise, labor, or support instead of physical products.
Recommended for: Consultants, marketing agencies, salons, and professional service firms.
10. Retail businesses
Retail businesses sell products directly to consumers in physical stores or through eCommerce platforms.
Recommended for: Clothing stores, supermarkets, online shops, and specialty retailers.
11. Manufacturing businesses
Manufacturers produce goods from raw materials and sell them to wholesalers, retailers, or directly to consumers. This type of business often requires significant investments in facilities, equipment, and staff to operate effectively.
Recommended for: Clothing factories, electronics producers, and food or beverage manufacturers.
12. Online businesses
Online businesses operate primarily through digital platforms. They can reach a global audience with lower overhead compared to traditional models, making them highly scalable.
Recommended for: SaaS companies, digital-first brands, subscription services, and global eCommerce platforms.
13. Hybrid businesses
Hybrid businesses combine online and offline operations. This model allows businesses to diversify their income streams and adapt to different customer preferences.
Recommended for: Retailers with both shops and eCommerce, restaurants with delivery apps, and service providers offering both virtual and in-person options.
Each of these business types has its own strengths and limitations. To help you compare them more easily, here’s a breakdown of the main pros and cons side by side.
Pros and cons of different business types
Each business type comes with its own advantages and challenges. The table below gives you a side-by-side view so you can quickly compare which option might align best with your needs.
| Business type | Pros | Cons |
| 1. Sole proprietorship | Easy and inexpensive to start Full control over decisions Simple tax reporting | No liability protection; personal assets are at risk Harder to raise outside funding Business ends if the owner stops operating |
| 2. Partnerships (general, LP, LLP) | Shared skills, resources, and workload Flexible structures for different roles Easier to raise capital than a sole proprietorship | Risk of disputes between partners Some partners may face personal liability Requires clear legal agreements |
| 3. Limited liability company (LLC) | Protects personal assets from business debts Pass-through taxation by default (option for corporate taxation) Less formal paperwork than corporations | Costs more to set up than sole proprietorships or partnerships Rules and fees vary by state May face limits on raising investment compared to corporations |
| 4. Corporations (C Corp, S Corp, Close Corp, PBC) | Strong liability protection Easier to raise funds through stock sales Credibility with investors and partners | Higher cost and more paperwork to maintain Subject to stricter regulations Complex tax rules; C Corps face double taxation |
| 5. Nonprofit organization | Eligible for tax exemptions Can receive grants and public donations Builds credibility through mission-driven focus | Must follow strict reporting and compliance rules Limited flexibility in how funds are used Harder to raise investment capital |
| 6. Cooperative | Profits shared among members Encourages collaboration and community focus Members benefit directly from the business | Decision-making can be slow with many stakeholders Limited ability to attract outside investors Success depends on active participation |
| 7. Franchise | Established brand recognition from the start Training and operational support from the franchisor Lower risk compared to starting from scratch | High initial fees and ongoing royalties Limited freedom to make independent changes Bound by the franchisor’s rules and restrictions |
| 8. Joint ventures | Access to new markets and customers Shared costs and reduced individual risk Combines expertise, technology, or resources | Shared control can cause conflicts Profits must be divided between parties Usually limited to a specific project or time frame |
| 9. Service businesses | Customers pay for expertise, labor, or experience Low upfront costs in many cases Relationships and reputation drive success | Can be harder to scale compared to product-based models Dependent on skill and time availability |
| 10. Retail businesses | Direct sales to consumers Physical or online presence possible Revenue can be steady with good demand | Inventory management required Higher operational costs (rent, staff, logistics) Competition can be intense |
| 11. Manufacturing businesses | Ability to produce goods at scale Control over product quality Opportunity to sell wholesale, retail, or direct-to-consumer | Requires high capital investment Complex operations and staffing needs Market risks tied to production costs |
| 12. Online businesses | Operate globally with lower overhead Scalable through digital platforms Diverse revenue models (eCommerce, SaaS, subscriptions) | Strong competition online Reliant on digital marketing and tech infrastructure May face trust barriers with customers |
| 13. Hybrid businesses | Flexibility to serve customers online and offline Multiple revenue streams Ability to adapt to customer preferences | Requires managing both physical and digital operations Higher costs than a single model Operational complexity |
No single business type is perfect — the right choice depends on your goals, resources, and long-term vision. Weighing these pros and cons helps you choose a structure that works for you now and supports where you want your business to go.
Types of business models and categories
Businesses can also be grouped by how they operate, where they sell, and who they serve. These models highlight the practical differences in scale, customer focus, and delivery methods.
By size:
- Small businesses usually have fewer employees and lower revenue. They are often owner-operated and flexible.
- Medium businesses manage larger teams and revenue with more formal systems.
- Large businesses operate with complex management and significant resources at national or global levels with coordination.
- Online businesses operate mainly through digital platforms, offering global reach with lower overhead.
- Brick-and-mortar businesses provide face-to-face service and a physical presence but carry higher costs.
- Hybrid businesses combine both, such as stores with an eCommerce site or restaurants offering dine-in and online delivery.
By audience:
- B2B (Business to Business). Selling products or services to other companies.
- B2C (Business to Consumer). Selling directly to individual customers.
- C2C (Consumer to Consumer). Peer-to-peer sales, often through marketplaces.
Understanding these categories helps entrepreneurs decide how to position their business. A small online B2C company looks very different from a large brick-and-mortar B2B company, even if both sell the same product type.
Set your business up for success
No single structure fits every entrepreneur. A sole proprietorship keeps things simple, an LLC balances protection with flexibility, and corporations unlock funding and scale. Nonprofits, cooperatives, and franchises each serve distinct missions.
The best choice is the one that aligns with your goals, manages risk, and gives room to grow. Get this step right, and you will set a foundation for lasting success.
With domains, hosting, and website tools from Network Solutions, you have what you need to put your business online and start building today.
Frequently asked questions
Yes, the 4 main types of business structures commonly recognized are indeed sole proprietorship, partnership, limited liability company (LLC), and corporation. Each has unique rules regarding liability, taxation, and management. For example, LLCs offer liability protection, while sole proprietorships offer full control but unlimited personal liability. This aligns well with the verified sources.
The most common type of business is indeed the sole proprietorship. It is the simplest to form, allows for complete control, but carries the risk of unlimited personal liability for business debts. This is supported by authoritative sources.
For many small businesses, the LLC is considered the best choice due to its liability protection and tax flexibility (pass-through taxation). This structure offers a balance of personal asset protection and simpler tax reporting compared to corporations. No wonder this is a widely supported recommendation.
Yes, business owners can change their structure as their needs evolve, such as converting a sole proprietorship to an LLC or electing S corporation status for tax benefits. This typically requires filings with government authorities and may have tax implications. That’s why this is consistent with practical business advice.
