Choosing the correct business entity is important because each entity type has different legal protection and have different tax advantages. There are a few different types of business structures. There are Sole Proprietorships, LLCs, Partnerships, S-Corps, and C-Corp that you can choose to make your business.
Sole Proprietorships provide no additional legal protection from the business and your personal life because sole proprietorships are not a separate legal entity. They are seen as an extension of the individual and are taxed at the individual level on schedule c of form 1040. The individual will have to pay self-employment tax on the profits of the business.
Partnerships require at least two different partners to form, these partners can be businesses or individuals. In a partnership, there is additional legal protection for a partner’s personal assets which can become beneficial in the case of a lawsuit. Partnerships are taxed through form 1065, which could require additional tax preparation fees, but can add tax savings to the partnerships depending on how the income is structured to flow through to them on the individual level.