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Selecting a Legal Structure for Your Business

One of your first decisions in setting up a business is the legal structure. The options range from a sole proprietorship, which is usually operated by a single person, to a full-fledged corporation that is flexible enough to employ hundreds of thousands of people and generate billions of dollars in revenue.

Each of these types of business entity differs as to where liability resides, the type and rate of taxation and the amount of formal reporting to state and federal governments, among other things.

Your choice will depend on the kind of business you are or will be starting and your vision for the business's future. If, for example, you are a freelance graphic designer who works alone from home with no plans to expand, the simplicity of a sole proprietorship might be just what you are looking for. As a business becomes more complex-with many employees, a more specialized management team, perhaps with facilities such as a manufacturing plant or warehouse-a more formal corporate structure would be necessary.

This section discusses the major types of business structure:

TIP: The U.S. Small Business Administration has a wizard to help you in "Choosing a Business Structure." A series of short questions will help narrow your options. See

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