Real‑world examples of how to choose the right business structure

Examples of how to choose the right business structure in real life

Most guides start with definitions. Let’s flip that. It’s much easier to understand the options when you see concrete examples of how to choose the right business structure in situations that feel familiar.

Below are several business stories: solo founder, married couple, tech team, investor‑backed startup, nonprofit, and more. These are the best examples to help you see how different structures actually play out.

Freelancer or consultant: a simple example of starting as a sole proprietor or single‑member LLC

Imagine Jordan, a graphic designer in Austin who quits her agency job and starts freelancing from home. No employees, no investors, just a laptop and a stack of client projects.

Jordan’s first instinct is to “keep it simple” and operate as a sole proprietor. That means:

• She doesn’t file separate formation paperwork with the state.
• She reports business income on Schedule C of her personal Form 1040.
• She pays self‑employment taxes on her profits.

This is a classic example of how to choose the right business structure when you’re testing an idea with very low risk. But Jordan worries about being personally on the hook if a client sues over a trademark issue.

So she looks at a single‑member LLC. In many U.S. states, forming an LLC is relatively inexpensive and gives her:

• Liability protection between her personal assets and business activities.
• Pass‑through taxation (by default, the IRS still treats her as a sole proprietor for tax purposes).

For a freelancer like Jordan, the best examples of smart decisions usually look like this:

• Start as a sole proprietor only if the risk is low and income is modest.
• Move to a single‑member LLC once income grows or risk increases.

This is a simple but powerful example of how to choose the right business structure as your business moves from “side hustle experiment” to “real business.”

Married couple bakery: examples include partnerships and multi‑member LLCs

Now picture Sam and Riley, a married couple opening a neighborhood bakery. They both work in the business, share decisions, and invest savings into equipment and a small storefront.

They technically could operate as a general partnership without filing anything formal. If they do that, though, both are personally liable for everything: leases, accidents in the shop, unpaid invoices.

Instead, this couple looks at a multi‑member LLC. This structure lets them:

• Share ownership in an operating agreement.
• Protect their personal home and savings from most business liabilities.
• Be taxed as a partnership with pass‑through income.

For a family‑run operation with real‑world risks (slips and falls, food safety, equipment loans), this is a textbook example of how to choose the right business structure that balances simplicity with protection.

In fact, when accountants offer examples of the best structure for small, local brick‑and‑mortar businesses with multiple owners, a multi‑member LLC is usually near the top of the list.

Tech startup with investors: C‑corporation as the default example

Now let’s jump to a very different world: a software startup in San Francisco. Three founders build a SaaS platform and immediately start talking to angel investors.

Investors almost always expect a C‑corporation, usually formed in Delaware. This is one of the clearest examples of how to choose the right business structure when you want venture capital and stock options.

Why a C‑corp here?

• Easy to issue different classes of stock (common vs. preferred).
• Clean cap table for investors.
• Potential access to Qualified Small Business Stock (QSBS) tax benefits under Internal Revenue Code Section 1202 (Cornell Law School, a .edu resource).

The founders could technically start as an LLC and later convert, but that often creates tax and legal friction for investors. For high‑growth, investor‑backed startups, the best examples almost always involve going straight to a C‑corp.

This is a sharp contrast to Jordan the freelancer. It shows that the right structure is less about the industry and more about your funding, risk, and growth plans.

Profitable small business with steady income: S‑corporation election as a tax strategy example

Consider Priya, who runs a marketing agency with $250,000 in net profit and three employees. She already operates as an LLC, but her accountant keeps mentioning the S‑corporation election.

An S‑corp is not a separate legal entity type like LLC vs. corporation. It’s a tax status you can elect with the IRS for qualifying corporations and LLCs. The IRS explains the basics of S‑corporations and eligibility rules here: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations.

Priya’s accountant shows her a simple example of how to choose the right business structure for tax purposes:

• As a standard LLC, all $250,000 of profit is subject to self‑employment tax.
• If she elects S‑corp status, she pays herself a reasonable salary (subject to payroll taxes), and the remaining profit can be distributed as dividends not subject to self‑employment tax.

This structure doesn’t change her liability shield as an LLC owner; it just changes how income is taxed. For profitable service businesses, this is one of the best examples of using structure as a tax optimization tool rather than just a legal label.

Nonprofit example: when a mission, not profit, drives the structure

Now meet a different kind of founder: Maya, who wants to start a community literacy program, funded by grants and donations. She’s not planning to pay out profits to owners; she wants every dollar to support the mission.

In this case, the right path is a nonprofit corporation that can apply for 501(c)(3) tax‑exempt status with the IRS. The IRS explains the 501(c)(3) process and requirements here: https://www.irs.gov/charities-non-profits/applying-for-tax-exempt-status.

This is a clear example of how to choose the right business structure when:

• You plan to seek grants and tax‑deductible donations.
• You want a board of directors instead of owners.
• You care about long‑term mission more than profit distributions.

Examples of organizations that use this structure include community health clinics, food banks, and educational charities. If you’re inspired more by service than by exit valuations, these are the examples you should be studying.

E‑commerce side hustle: example of starting simple, then upgrading

Let’s say Alex starts selling handmade candles on an online marketplace while still working a full‑time job. Sales are small at first—maybe $3,000 the first year.

Alex begins as a sole proprietor because:

• It’s fast and cheap.
• The risk is modest at low sales volume.

But as revenue grows to $60,000 a year, Alex starts shipping nationwide and selling in local boutiques. Now there’s product liability risk, shipping issues, and a growing customer base.

Here we get another practical example of how to choose the right business structure over time:

• Year 1–2: Sole proprietor while testing the idea.
• Year 3+: Form an LLC for liability protection, possibly elect S‑corp status if profits justify the extra payroll and compliance work.

This side‑hustle‑to‑real‑business path is one of the most common real examples you’ll see today, especially with the growth of online marketplaces and social media‑driven brands.

Professional services (doctor, lawyer, therapist): examples include PLLCs and professional corporations

Some states restrict how licensed professionals can organize their businesses. Imagine Dr. Lopez, a psychologist opening a private practice.

In many states, she cannot simply form a standard LLC. Instead, she might be required to use a Professional Limited Liability Company (PLLC) or Professional Corporation (PC), which are designed for licensed professions.

This is an important example of how to choose the right business structure when your state licensing board and state law impose extra rules. The right move is to:

• Check your state’s Secretary of State and licensing board websites.
• Look at examples of how other practitioners in your state structure their practices.

The IRS still taxes these entities under familiar rules (like S‑corp elections), but the legal label must match professional regulations. This is where a local attorney or CPA earns their fee.

2024–2025 trends that influence these examples

The last few years have changed how people think about structure. Some real‑world shifts:

• Remote and online businesses are exploding. More people are starting service‑based businesses from home—coaching, design, consulting. For many of them, examples of how to choose the right business structure often start with a single‑member LLC for flexibility and liability protection.
• Creator and influencer businesses are maturing. TikTokers, YouTubers, and podcasters are moving from hobby income to real revenue. The best examples here usually involve LLCs with S‑corp elections once sponsorship and ad income become predictable.
• More people are starting businesses later in life. With retirement savings at stake, these founders often prefer structures that protect personal assets—LLCs and corporations—rather than operating as sole proprietors.

The U.S. Small Business Administration tracks trends in business formation and small business profiles: https://www.sba.gov/advocacy/small-business-economic-research. Reviewing those reports can give you real examples of how different industries tend to organize.

How to match your situation to these examples of how to choose the right business structure

Looking at all these stories, you might be wondering: Which example looks most like me? Here’s a way to think about it in plain language, without turning this into a numbered checklist.

If you’re solo, testing an idea with low risk, you’re closest to Jordan the freelancer or Alex in year one. Examples of structures that fit:

• Sole proprietorship if risk and income are low.
• Single‑member LLC if you want a liability shield and a more professional image.

If you’re building with one or two partners, you’re more like Sam and Riley at the bakery. Examples include:

• Multi‑member LLC with a clear operating agreement.
• Partnership taxation to keep things simple while sharing profits.

If you’re chasing big growth and investors, you’re in the tech startup category. The best examples here:

• Delaware C‑corporation from day one.
• Formal stock, vesting schedules, and investor‑friendly governance.

If you’re running a profitable service business with stable income, you’re similar to Priya. A common example of a smart move:

• LLC or corporation with an S‑corp election to manage self‑employment taxes.

If you’re mission‑driven and donation‑funded, you’re in Maya’s world. Real examples:

• Nonprofit corporation with 501(c)(3) status.
• Board governance instead of owners.

If you’re a licensed professional, you’re like Dr. Lopez. Examples include:

• PLLC or PC, depending on your state.

As you compare yourself to these examples of how to choose the right business structure, remember: you’re not marrying your first choice forever. Many businesses start simple and then change structure as they grow.

FAQs: examples of common questions about choosing a business structure

Q: Can you give an example of when a sole proprietorship is enough?
Yes. A part‑time freelance writer earning $15,000 a year with no employees and minimal liability risk is a good example of when a sole proprietorship can be enough—especially if they’re just testing demand. If income or risk grows, many writers later form a single‑member LLC.

Q: What are examples of businesses that should start as corporations instead of LLCs?
Investor‑backed tech startups, biotech companies planning multiple funding rounds, or businesses that expect to issue stock options broadly to employees often start as C‑corporations. These are real examples of how to choose the right business structure when investor expectations and stock‑based compensation matter more than short‑term tax simplicity.

Q: What is an example of when an S‑corp election usually makes sense?
A solo consultant with $150,000 in net profit, consistent clients, and no plans to add many owners is a classic example. They can pay themselves a reasonable salary and take the rest as distributions, potentially reducing self‑employment taxes compared to a standard LLC taxed as a sole proprietorship.

Q: Are there examples of when an LLC is not the best choice?
Yes. If you’re trying to raise venture capital, many investors dislike LLCs because of pass‑through taxation and complexity. In that case, a C‑corporation is often better. Another example: if your state has very high LLC fees but low‑cost corporations, a traditional corporation might be more cost‑effective.

Q: Where can I find more official examples of business structures and tax rules?
The IRS provides detailed information on business structures and tax treatment at https://www.irs.gov/businesses/small-businesses-self-employed/business-structures. The U.S. Small Business Administration also offers guidance on choosing a structure at https://www.sba.gov/business-guide/launch-your-business/choose-business-structure. Reviewing these sources alongside the real‑world examples in this article can help you make a more informed decision.

The bottom line: use these real examples of how to choose the right business structure as a mirror. Find the story that feels most like yours, note how that founder handled liability, taxes, partners, and growth, and then sit down with a qualified accountant or attorney to adapt that example to your own reality.