Friday Finance: Corporate Structures

Various Corporate Structures in the US today

Friday Finance: Corporate Structures

On our Friday Finance call in May, 2026, the idea of a corporate struction was discussed and debated; however, it focused mainly on Sole Proprietorships, LLC’s, S Corps and C Corps. That makes sense since these about 90% of all corporate structures. At the same meeting, since my daughter Kathleen is a musician, she asked about the creation of the “A Corp” in Colorado. Having no experience with A Corps, there was some spade work to do. And there is a separate Friday Finance: A Corps page on that unique to Colorado concept, which is worthy of deeper discussions as the legislation moves forward.

The other call participants felt it was worthwhile to review all of the Corporate Structures out there, so that when we re-read books like Rich Dad, Poor Dad, we can place their situation in the right context.

So, below is a quick Chat-GPT summary of the Corporate Structures, with limited color commentary from me. Each section has been outlined with: What it is; Best Suited for; Pros and Cons of these corporate types.

1. Sole Proprietorship

What it is

The simplest business form: one individual owns and operates the business personally. Sole Proprietorships also represent, by far, the largest number of companies in the country. Approximately 70-73% of all US companies are sole proprietorships.

Best suited for

Freelancers
Consultants
Small side businesses
Very low-risk operations

Pros

Extremely easy and inexpensive to start
Minimal paperwork
Income taxed once on personal return
Complete owner control

Cons

Unlimited personal liability
Harder to raise capital, after examining own wallet and money from friends and family …
Business ends upon owner’s death unless transferred
Self-employment taxes apply

2. General Partnership

What it is

Two or more people operate a business together without formal incorporation.

Best suited for

Professional collaborations
Small family businesses
Informal ventures

Pros

Simple setup
Shared management and capital
Pass-through taxation

Cons

Each partner personally liable for debts
One partner can legally bind others
Potential disputes
Self-employment taxes generally apply

3. Limited Partnership (LP)

What it is

A partnership with:

General partners (manage and bear liability)
Limited partners (investors with limited liability)

Best suited for

Real estate investment groups
Film or venture investment structures
Passive investor arrangements

Pros

Allows passive investors
Flexible profit allocation
Pass-through taxation: n.b. 96% of all US business tax returns in 2026 were pass-through entities

Cons

General partner has unlimited liability
More filing complexity
Investor protections depend on agreements

4. Limited Liability Partnership (LLP)

What it is

A partnership where partners receive liability protection from actions of other partners.

Best suited for

Law firms
Accounting firms
Professional services

Pros

Liability shield from other partners’ malpractice
Pass-through taxation
Shared management flexibility

Cons

Not available for all professions in all states
More regulatory requirements
Some personal liability may remain

5. C Corporation (“C Corp”)

What it is

The standard corporation under IRS Subchapter C. And while the number of companies in the US who choose to be C Corps is small (~5–6%), they generate a huge share of company investment, revenue, market capitalization, and employment,

Separate legal entity from owners.

Best suited for

Large companies
Venture-backed startups
Businesses planning IPOs
Companies needing multiple investor classes

Pros

Strong liability protection
Easier to raise capital
Unlimited shareholders
Multiple stock classes allowed
Perpetual existence
Attractive to institutional investors

Cons

Double taxation:
- corporation pays taxes
- shareholders taxed again on dividends
More formalities and compliance
More expensive administration

Famous examples

Apple Inc.
Microsoft Corporation
The Coca-Cola Company

6. S Corporation (“S Corp”)

What it is

A tax election under IRS Subchapter S. The number of companies that are S Corps is approimatetly ~12–15% of all corporations. Legally it is usually a corporation or LLC, but taxed differently.

Best suited for

Small-to-medium operating businesses
Owner-operated firms
Businesses with steady profits

Pros

Pass-through taxation
Avoids corporate double taxation
Potential payroll tax savings
Liability protection

Cons

Strict IRS requirements:
- ≤100 shareholders
- U.S. citizens/residents generally required
- One class of stock only
More IRS scrutiny on compensation
Less attractive to institutional investors

Often ideal for

Medical practices
Small agencies
Closely held businesses

7. B Corporation (“Benefit Corporation” / Certified B Corp)

Important distinction

There only a tiny fraction of the US corporations who choose to become Certified B Corps. There are actually two related concepts:

A. Benefit Corporation

A legal corporate form available in many states.

B. Certified B Corp

A private certification issued by B Lab.

A company can be one, the other, or both.

Best suited for

Mission-driven companies
ESG-oriented firms
Social enterprises

Pros

Allows balancing profit with social/environmental goals
Appeals to socially conscious consumers and employees
Signals governance commitments

Cons

Additional reporting obligations
Certification process can be rigorous
Mission goals may complicate investor priorities

Examples

Patagonia
Ben & Jerry’s

Common types of limited liability companies

8. Limited Liability Company (LLC)

What it is

A hybrid structure combining:

liability protection of corporations
tax flexibility of partnerships

Best suited for

Small businesses
Real estate holdings
Family businesses
Flexible ownership arrangements

Pros

Liability protection
Flexible taxation:
- sole proprietor
- partnership
- S corp
- C corp
Fewer formalities
Flexible management structure

Cons

Self-employment taxes may apply
Some states impose extra LLC taxes/fees
Investors often prefer C corps
Rules vary by state

Extremely common today

The LLC has become the dominant entity choice for many small and medium businesses. Approximately 15–20% of corporations in the US were created and are structured as LLCs.

9. Series LLC

What it is

An LLC with separate internal “series” compartments.

Each series can hold different assets and liabilities.

Best suited for

Real estate investors
Asset segregation
Multi-property holdings

Pros

Liability separation between series
Can reduce administrative duplication

Cons

Not recognized equally in all states
Legal uncertainty across jurisdictions
More complex accounting

10. Nonprofit Corporation (501(c)(3) etc.)

What it is

Organizations formed for charitable, educational, religious, scientific, or public purposes. And while these entity types are small in the overall scheme of corporate structures (1–2% of all organizational entities), they have missions and funders who are passionate about their work and value to society.

Best suited for

Charities
Schools
Museums
Foundations

Pros

Tax-exempt status possible
Eligible for grants/donations
Limited liability

Cons

Extensive regulation
No equity ownership
Profits cannot benefit private individuals

Examples

American Red Cross
Smithsonian Institution

11. Professional Corporation (PC)

What it is

Corporation for licensed professionals.

Best suited for

Doctors
Lawyers
Dentists
Architects

Pros

Liability protection for business debts
Professional branding
Tax planning opportunities

Cons

Cannot shield own malpractice
State-specific rules
Ownership restrictions

12. Professional Limited Liability Company (PLLC)

What it is

LLC version for licensed professionals in states that prohibit normal LLCs for professions.

Best suited for

Medical groups
Legal practices
Accounting firms

Pros

Flexible taxation
Liability protection
Easier administration than corporations

Cons

State restrictions
Professional licensing oversight

13. Cooperative (“Co-op”)

What it is

Business owned and democratically controlled by members/users.

Best suited for

Agricultural groups
Food co-ops
Worker-owned businesses
Credit unions

Pros

Democratic governance
Shared economic benefit
Community orientation

Cons

Slower decision-making
Harder to raise traditional capital
Governance can become complex

14. Joint Venture (JV)

What it is

Temporary arrangement between companies for a specific project.

Best suited for

Construction projects
International business expansion
Collaborative development

Pros

Shared risk/resources
Strategic collaboration

Cons

Potential conflicts
Complex agreements
Limited duration

Tax Classifications vs Legal Structures

A major point of confusion: Legal entity ≠ tax classification

For example:

An LLC is a legal structure
It may elect:
- sole proprietor taxation
- partnership taxation
- S corp taxation
- C corp taxation

This flexibility is why LLCs are so popular.

Quick Comparative Summary

Structure	Liability Protection	Taxation	Best For
Sole Proprietorship	No	Pass-through	Solo side businesses
Partnership	No/Partial	Pass-through	Multiple owners
LLC	Yes	Flexible	Most small businesses
S Corp	Yes	Pass-through	Profitable owner-operated firms
C Corp	Yes	Double taxation	Scalable/high-growth firms
B Corp	Yes	Depends on entity	Mission-driven businesses
Nonprofit	Yes	Tax-exempt possible	Charitable/public missions
LLP	Partial	Pass-through	Professional firms
LP	Mixed	Pass-through	Investment structures

Typical “Best Choice” by Scenario

Scenario	Often Best Structure
Freelance consultant	LLC or sole proprietorship
Real estate investor	LLC or Series LLC
Startup seeking VC funding	C Corp (usually Delaware)
Family-owned operating business	S Corp or LLC
Law/accounting practice	LLP or PLLC
Mission-driven company	Benefit Corporation
Charity or foundation	Nonprofit corporation

One Important Reality

The “best” structure usually depends on your ultimate goals of your organization:

tax goals
liability exposure
number/type of owners
fundraising plans
state law
exit strategy
payroll/distribution strategy

That is why serious businesses usually consult with one of the following experts before starting your new corporate structure:

a CPA
a business attorney
sometimes an estate planner