Best examples of business structures: advantages & disadvantages

Let’s start with how people actually use these structures in the wild. Forget textbook diagrams—these are the kinds of situations you’ll recognize.

A freelance software developer billing clients directly under their own name.
Two friends opening a neighborhood coffee shop and splitting profits.
A fast-growing e‑commerce brand selling on Amazon and Shopify.
A doctor joining a medical group in a professional corporation.
A remote-first SaaS startup raising venture capital.
A group of lawyers forming a limited liability partnership.

Each of these is a different example of a business structure choice, and the advantages & disadvantages examples become obvious once you see who’s on the hook for debts, how taxes work, and what investors will tolerate.

Sole proprietorship: the simplest example of a one-person business

The most common example of a business structure for solo earners is the sole proprietorship. If you start selling services or products under your own name without forming an entity, you’re almost certainly a sole proprietor by default.

Think of:

A freelance graphic designer invoicing clients directly.
An Etsy seller making jewelry at home.
A handyman doing small repairs around town.

Advantages (with real examples)

For a solo freelance developer starting out, a sole proprietorship is attractive because:

Easy setup: In most U.S. states, there’s no formal formation filing. You may just need a local business license or a DBA (“doing business as”) if you want a brand name.
Low cost: No state formation fees, minimal annual reporting. Great for testing an idea with almost no overhead.
Simple taxes: Income is reported directly on your personal tax return (Schedule C in the U.S.), which keeps your accountant bill lower.

Many creators on platforms like Substack or Patreon operate as sole proprietors in the early stages for exactly these reasons.

Disadvantages and risk tradeoffs

The big disadvantage in this set of examples of business structures: advantages & disadvantages examples is unlimited personal liability. If the handyman accidentally causes damage and gets sued, personal assets (house, car, savings) are all potentially on the line.

Other drawbacks:

Harder to bring in investors; most won’t invest in “you personally.”
Less credibility with some corporate clients.
Income is subject to self-employment taxes in the U.S.

For very small, low-risk ventures, that tradeoff might be acceptable. The moment risk or revenue climbs, most people start looking at LLCs.

For a solid overview of U.S. sole proprietorship tax treatment, the IRS has a plain-English guide here: https://www.irs.gov/businesses/small-businesses-self-employed/sole-proprietorships

Partnerships are the next logical step when more than one person is involved. Two typical examples include:

A married couple running a small landscaping business together.
Two chefs opening a bistro and splitting everything 50/50.

General partnership

A general partnership often forms automatically when two or more people go into business together for profit without creating another entity.

Advantages:

Easy to start; often no formal filing.
Pass-through taxation (profits and losses go directly to partners’ personal returns).
Flexible profit-sharing arrangements via a partnership agreement.

Disadvantages:

Each partner has unlimited personal liability for business debts and for the actions of the other partners.
Disputes can get ugly without a strong partnership agreement.

In examples of business structures: advantages & disadvantages examples, general partnerships are one of the riskiest setups because you’re betting your personal assets on your partner’s decisions too.

Limited partnership (LP) and limited liability partnership (LLP)

To reduce that risk, some businesses use LPs or LLPs:

Example of an LP: A real estate investment group where one general partner runs the deals and several limited partners contribute capital only.
Example of an LLP: A mid-size law firm where each partner wants protection from malpractice claims arising from another partner’s work.

Advantages of LP/LLP:

Limited partners in an LP have liability limited to their investment.
In an LLP, individual partners are typically shielded from certain liabilities of other partners (rules vary by state).
Still enjoy pass-through taxation.

Disadvantages:

More paperwork and state-specific rules.
Not all states treat LLPs the same way.

Law, accounting, and consulting firms in the U.S. are great real examples of business structures that lean on LLPs to balance shared ownership with liability protection.

For more detail on partnership taxation, see the IRS partnership page: https://www.irs.gov/businesses/partnerships

LLC (Limited Liability Company): the modern default for small businesses

If you ask U.S. small-business owners in 2024–2025 what structure they chose, the LLC shows up in many of the best examples. It’s become the go-to for:

E‑commerce brands selling via Amazon FBA and Shopify.
Local service businesses like gyms, salons, and HVAC companies.
Online course creators and agencies with remote teams.

Why entrepreneurs love LLCs

In the list of examples of business structures: advantages & disadvantages examples, LLCs often look like the sweet spot:

Limited liability: Members (owners) are generally not personally liable for business debts if they keep business and personal finances separate.
Tax flexibility: By default, single-member LLCs are taxed like sole proprietors; multi-member LLCs like partnerships. But you can also elect to be taxed as an S corporation or even a C corporation.
Operational flexibility: Fewer corporate formalities than a traditional corporation. Operating agreements can be tailored to almost any ownership and profit-sharing structure.

Example: A three-person digital marketing agency forms an LLC. They agree that one founder gets a larger profit share for bringing in most of the clients, even though ownership percentages are equal. The LLC structure makes that easy to document in the operating agreement.

Disadvantages and limitations

LLCs aren’t perfect:

Some investors (especially venture capital funds) prefer or require C corporations.
Certain states impose higher annual fees or franchise taxes on LLCs.
Rules vary by state, which can be messy if you operate in multiple jurisdictions.

Still, for a U.S.-based online business with no immediate need for venture funding, an LLC is often the most practical example of a business structure choice.

The U.S. Small Business Administration has a helpful overview of LLCs and other structures here: https://www.sba.gov/business-guide/launch-your-business/choose-business-structure

C corporation: the classic structure for scale and investment

When you see startups raising millions from venture capital funds, you’re almost always looking at a C corporation, often a Delaware C corp.

Real-world examples include:

A SaaS platform raising a seed round from institutional investors.
A biotech company planning for an eventual IPO.
A fast-scaling fintech app with stock option plans for employees.

Advantages for high-growth companies

In this tier of examples of business structures: advantages & disadvantages examples, C corporations stand out for:

Easier to attract investors: Preferred stock, clear share classes, and familiar governance structures.
Stock options: Equity compensation (options, RSUs) is much easier to manage in a corporation, which matters for tech and biotech companies trying to hire aggressively.
Perpetual existence: The company continues regardless of ownership changes.

For a VC-backed AI startup in 2025, a C corporation is almost non-negotiable. Many funds simply won’t invest in LLCs or partnerships because of tax and governance constraints.

Disadvantages: double taxation and complexity

The classic downside is double taxation:

The corporation pays tax on its profits.
Shareholders pay tax again on dividends.

There are also:

More rigid formalities (boards, annual meetings, minutes).
Higher legal and accounting costs.

For a local bakery, that extra complexity rarely makes sense. For a company aiming at a public listing, it’s part of the territory.

S corporation: a tax-focused variation, not a separate legal form

An S corporation is often misunderstood. In the U.S., it’s a tax election, not a different legal entity. LLCs and corporations can elect S corp status if they meet IRS rules.

Typical examples include:

A profitable consulting firm with a small number of owners.
A medical practice where owners want to reduce self-employment taxes.

Advantages in the right scenario

Among examples of business structures: advantages & disadvantages examples, S corp treatment is attractive because:

Pass-through taxation: Income flows to shareholders’ personal returns, avoiding corporate-level income tax.
Potential payroll tax savings: Owners who work in the business can pay themselves a “reasonable salary” and take additional profits as distributions, which may reduce self-employment taxes (subject to strict IRS scrutiny).

Disadvantages and constraints

Strict eligibility rules (limited number of shareholders, all must generally be U.S. persons, only one class of stock).
More complex payroll and compliance requirements.
Not suitable for typical venture-backed startups because of share class restrictions.

If you’re already profitable and paying significant self-employment taxes, talking with a CPA about an S corp election can be worth it. The IRS explains S corporations here: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations

Professional corporations and LLCs: examples for doctors, lawyers, and specialists

Some professions in U.S. states are required or strongly encouraged to use professional corporations (PCs) or professional LLCs (PLLCs). These show up in real examples of:

Medical groups.
Law firms.
Architecture and engineering practices.

Why these exist

Regulators want licensed professionals to remain personally responsible for their own malpractice, while still allowing some liability protection and business structure benefits.

Advantages:

Limited liability for business debts and obligations.
Professional branding and ownership rules aligned with licensing boards.

Disadvantages:

Extra regulatory oversight.
Ownership often limited to licensed professionals.

A four-doctor practice might form a professional corporation where each doctor is a shareholder. They share overhead and profits, but each remains responsible for their own clinical decisions. This is a nuanced example of a business structure where liability protection is carefully carved out.

Nonprofits: mission-first examples of business structures

Not every organization is trying to distribute profits to owners. Nonprofit corporations are used when the primary goal is a mission—education, charity, research, arts.

Real examples include:

A local food bank.
A community arts center.
A research foundation partnered with a university.

Advantages

Eligibility for tax-exempt status under U.S. Internal Revenue Code section 501(c)(3) and others.
Ability to accept tax-deductible donations.
Mission-driven governance that can attract grants and volunteers.

Disadvantages

Strict rules on how funds can be used.
No distribution of profits to founders or directors.
Higher governance and reporting obligations.

For someone whose primary goal is impact rather than personal wealth, this is the best example of a business structure that aligns with donors, regulators, and the public.

The IRS provides detailed guidance on tax-exempt organizations here: https://www.irs.gov/charities-non-profits

Matching examples of business structures: advantages & disadvantages examples to your goals

By now you’ve seen multiple examples of business structures: advantages & disadvantages examples across the spectrum—from a solo freelancer to a venture-backed tech company. The real decision comes down to a few questions:

Risk: How much personal liability can you tolerate? High-risk activities push you toward LLCs, corporations, or professional entities.
Taxes: Do you prefer pass-through taxation now, or are you planning to reinvest profits inside a company?
Funding: Are you bootstrapping, borrowing from a bank, or courting investors?
Exit plan: Are you building a lifestyle business, or chasing an acquisition or IPO?

Some quick, realistic matches:

A part-time freelance copywriter testing the waters might stay a sole proprietor initially, then convert to an LLC once income and risk grow.
A two-partner local restaurant might use an LLC taxed as a partnership for flexibility and liability protection.
A fast-scaling AI startup targeting institutional investors almost certainly forms a Delaware C corporation.
A medical clinic with several physicians may use a professional corporation with S corporation tax election.
A neighborhood charity that wants to accept tax-deductible donations forms a nonprofit corporation and seeks 501(c)(3) status.

The point is not that one structure is “better” in the abstract. The best examples are the ones that fit your risk profile, tax reality, and growth ambitions.

FAQ: examples of business structures and how to choose

What are common examples of business structures for small businesses?

Common examples include sole proprietorships (freelancers, solo consultants), partnerships (two-person service firms), LLCs (local retailers, online brands), and S corporations (profitable professional practices). For many U.S. small businesses, an LLC or S corp–elected LLC offers a strong mix of liability protection and tax flexibility.

Can you give an example of when a corporation is better than an LLC?

A corporation is often better than an LLC when you plan to raise money from venture capital funds or eventually go public. For instance, a SaaS startup planning multiple funding rounds typically forms a Delaware C corporation because investors are familiar with that structure and prefer corporate stock over LLC membership interests.

What is an example of a high-risk business that should avoid a sole proprietorship?

A construction contractor, a medical practice, or a food manufacturing business involves significant liability exposure. In these examples of business structures: advantages & disadvantages examples, operating as a sole proprietorship would put the owner’s personal assets at risk. An LLC, corporation, or professional entity usually makes far more sense.

Are there examples of businesses that stay sole proprietors long term?

Yes. Some low-risk, low-overhead professionals—such as tutors, part-time coaches, or hobby sellers with modest income—remain sole proprietors for years. They often accept the liability risk because revenue is limited and the cost and complexity of forming an entity aren’t justified yet.

What is an example of a business that should consider an S corporation election?

A profitable consulting firm with one or two owner-operators making well above a reasonable salary level is a classic example. By electing S corporation status (either as a corporation or an LLC electing S corp taxation), they may reduce self-employment taxes on part of their earnings, provided they follow IRS rules on reasonable compensation.

Bottom line: Use these real examples of business structures, advantages & disadvantages examples as a map, not a script. Then sit down with a qualified attorney and tax professional in your jurisdiction to translate that map into the right structure for your specific business, risk, and goals.

Best examples of business structures: advantages & disadvantages examples