If you have decided to start your own business, one of the first things to do is to set up your business as a legal entity. A lawyer can help you determine which business entity is right for you legally and for tax purposes. Generally speaking, in the US, there are four types of businesses you can set up.

1. Sole proprietorship: With a sole proprietorship, you accept all business-related liabilities at a personal level. In the eyes of the law, you and your business are the same entity. This makes things easy for tax purposes. All profits, losses, assets, and debts are yours. The drawback is if you are sued by a client, the resulting litigation may be able to hold your personal finances and assets as damages to the plaintiff in the case.
2. Partnership: Similar to a sole proprietorship, a partnership involves two individuals who share legal and fiscal responsibility for the business together. Often, the parties involved with negotiate a contract that details who owns what portion of the company.
3. Corporation: A corporation is the most legally and fiscally complicated method of starting a business, but has its benefits as well. When you incorporate your business, it becomes a legal entity of its own. This allows you to take greater risks than sole proprietorships and partnerships because you have a legal and fiscal layer between the corporate entity and the individuals involved in the business.
4. Limited liability company (LLC): A flexible alternative to a sole proprietorship or a corporation is an LLC. This form of business entity provides limited liability to its owners similar to a corporation but with an income taxation structure similar to a partnership.

Check with your attorney to discuss the right type of business entity for you. (Disclaimer: this article is not meant to provide legal advice.)

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