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Are you on the verge of starting your own business? Do you need help navigating the legal ins and outs of the process? We can help answer your small business law questions right here at Saxton Law Firm in Kansas City, MO. You may have questions like – what is the best type of business entity for my business? We can answer your questions and we can assist you with any additional legal questions as you start your brand-new business.

Guide to the Different Types of Business Entities

When you start your business, one of the first things you need to decide is what type of business entity you want your business to be. A business entity is defined as – any organization formed to conduct business. Pretty simple, right? That is just the basics. There are five different types of business entities – Limited Liability Companies (LLC), Sole Proprietorships, Partnerships, Corporations and S Corporations – and each has its own business structure as well as legal and tax considerations.

Here is a closer look at each type of business entity.

Limited Liability Company (LLC)

Businesses defined as a Limited Liability Company or LLC are each structured based on the state where they do business and can be run by individuals, corporations, foreign entities or groups. The basic purpose of an LLC is to limit the legal liability of the individual and put that responsibility on the company – which means taxes, penalties, licenses and more are the legal obligation of the business. Benefits of an LLC include the ability to protect your personal property and assets from any business liability, minimize tax liability and make business far less complicated.

Sole Proprietorship

When you imagine mom-and-pop stores on Main Street USA – it is a good chance those businesses are sole proprietorships. A sole proprietorship is defined as an unincorporated business that is owned by a single individual. This type of business entity is easy to start and easy to dissolve and many transition to an LLC or corporation as they get larger. Taxes for a sole proprietorship are limited to a single layer of income tax – but that does mean the individual owner is wholly responsible for the taxes.


A business partnership is defined as a business relationship between two or more individuals in trade or in business. When you enter into a business partnership the burden of taxes, labor, property and losses is shared – as are any profits made by the company. A shared agreement can benefit all members of the partnership – but it can be complicated if you choose to dissolve the partnership or when you need to file taxes for the business.


Has your small business taken off? Are you ready to become a corporation? A corporation is different in that it is created when a business is incorporated by shareholders who provide financial and material support in return for capital stock and dividends. A corporation functions in many ways like an individual or sole proprietorship when it pays taxes – but a corporation may be eligible for federal tax deductions. In a corporation, the profits are taxed when earned and then taxed as they are distributed to the individual shareholders. Businesses that are defined as corporations operate with a board of directors who hire an executive team to oversee regular operations.

S Corporation

An s corporation is different from the standard corporation in that it provides a way for the business to avoid the double taxation of initial profits and shareholder dividends. When a business is defined as an s corporation, the shareholders report the income, losses, deductions and any credit on their own personal tax returns. An s corporation must be a domestic corporation, have set parameters for shareholders, may have no more than 100 shareholders, must have one class of stock and cannot be an ineligible business. An s corporation provides a wide range of tax benefits – but costs are higher to start and there are complex legal precedents.

What Can An Attorney Do for Your Small Business?

We know – we just threw a lot of legal and business terms at you and it may seem complicated – but that is where Saxton Law Firm can help. We specialize in business litigation and there are a lot of ways that we can help you and your small business get started. Here is a list of just a few ways we can help at Saxton Law Firm.

Black Business Law Book and Gavel on a Desk

READ MORE: How To Form or Dissolve a Business Partnership

Do you have legal questions about how to start your own business? Do you need an attorney to help your business remain compliant with state law? Saxton Law Firm is here to help answer all of your business law questions in the Kansas City area. Contact Saxton Law Firm today for a FREE legal consultation and to learn more about how we can help!