Overview
Choosing the right business structure is an important first step when building business credit.
Your business structure affects how your business is registered with the state, how it is taxed, how liability is handled, and how business credit accounts are reported. Because CreditStrong Business accounts are tied to your registered business entity, understanding these differences can help ensure your account is set up correctly and reports as expected.
This article provides a high‑level overview of common business structures, how they typically function, and what they mean in the context of business credit. Requirements and rules vary by state, and this information is intended to help you understand your options, not to provide legal or tax advice.
If you’re unsure which structure is right for your situation, a qualified legal or tax professional can help you decide before applying for a CreditStrong Business account.
Common business structures
Sole proprietorship
A sole proprietorship is the simplest business structure and gives one person full control of the business. It does not create a separate legal entity.
Because there is no separation between the business and the owner:
- Business assets and liabilities are not separate from personal assets
- The owner may be personally responsible for business debts and obligations
Most sole proprietors operate under a trade name rather than their personal name.
Good fit for: Low‑risk businesses, individuals testing a business idea, or owners who want minimal setup and administrative requirements.
Partnership
A partnership is a structure where two or more people own a business together. There are two common types.
Limited partnership (LP)
- One general partner has unlimited personal liability
- Other partners have limited liability and typically limited control
- Profits pass through to personal tax returns
- The general partner usually pays self‑employment taxes
Limited liability partnership (LLP)
- All partners have limited personal liability
- Partners are generally not responsible for the actions of other partners
- Often used by professional groups
Good fit for: Businesses with multiple owners, professional practices, or groups testing a shared business idea.
Limited liability company (LLC)
An LLC combines elements of partnerships and corporations.
In most cases:
- Personal assets are protected from business liabilities
- Profits and losses pass through to personal income taxes
- Members are considered self‑employed and pay self‑employment taxes
Some states require an LLC to dissolve and reform if ownership changes, unless an operating agreement already addresses ownership transfers.
Good fit for: Medium‑ or higher‑risk businesses, owners with personal assets to protect, and those seeking flexibility without full corporate structure.
Corporations
C corporation (C corp)
A C corporation is a separate legal entity from its owners.
Key characteristics:
- Strong personal liability protection
- Higher formation and compliance requirements
- Corporate profits are taxed, and dividends may be taxed again at the shareholder level
Corporations have an independent existence and can continue operating even if ownership changes. They can also raise capital by issuing stock.
Good fit for: Businesses planning to raise capital, scale significantly, go public, or be sold in the future.
S corporation (S corp)
An S corporation is a special tax election available to qualifying corporations.
Key characteristics:
- Avoids double taxation by passing profits and some losses to shareholders
- Requires filing with the IRS to elect S corp status
- Subject to ownership and eligibility restrictions
Not all states treat S corporations the same for tax purposes.
Good fit for: Businesses that meet eligibility requirements and want corporate structure with pass‑through taxation.
Benefit corporation (B corp)
A benefit corporation is a for‑profit corporation that also commits to a public benefit.
Key characteristics:
- Focus on both profit and social or public goals
- May be required to publish benefit reports, depending on the state
- Taxed the same as a C corporation
Third‑party B corp certifications exist, but certification is not required for legal B corp status.
Close corporation
Close corporations are designed for smaller companies and have fewer formal requirements.
Key characteristics:
- Typically limited number of shareholders
- Shares are not publicly traded
- May operate without a formal board of directors
Rules vary by state.
Nonprofit corporation
Nonprofit corporations exist to serve charitable, educational, religious, scientific, or similar purposes.
Key characteristics:
- May qualify for federal and state tax‑exempt status
- Must file with the IRS for tax exemption
- Profits cannot be distributed to individuals or political campaigns
Many nonprofits operate under 501(c)(3) status, referring to the relevant section of the Internal Revenue Code.
Comparing business structures
Each business structure differs in ownership rules, liability exposure, tax treatment, and filing requirements. These details vary by state.
This article is intended as a general overview only. Customers should consult a qualified business, tax, or legal professional to determine which structure best fits their specific needs.
Business industries
Industry selection does not affect CreditStrong Business application approval unless the industry is ineligible. Industry information is used for internal reporting and audience insights.
Eligible industries
Building services
- AC & Heating Contractors
- Carpentry, Electrical, and General Contractors
- Special Trade Contractors
- Other Building Services
Digital products
- Apps, Software as a Service
- Blogs, Books, Games, Music, Media
- Telecom Services
Education
- Child Care Services
- Elementary, Secondary, and Higher Education
- Vocational and Trade Schools
Entertainment and recreation
- Amusement Parks and Attractions
- Event Ticketing and Movie Theaters
- Musicians and Performance Groups
- Recreational Camps and Tourist Attractions
Food and drink
- Restaurants and Nightlife
- Grocery Stores and Meal Kits
- Caterers and Food Delivery
Medical and health services
- Doctors, Dentists, Chiropractors
- Mental Health and Wellness Services
- Medical Organizations and Devices
- Veterinary Services
Membership organizations
- Charities and Social Service Organizations
- Civic, Fraternal, and Social Associations
- Religious Organizations
Personal services
- Fitness, Health, and Wellness
- Landscaping, Cleaning, and Laundry Services
- Salons, Barbers, Massage, Photography
Retail and merchandise
- Art, Clothing, Beauty Products
- Auto Parts, Furniture, Electronics
- Home and Consumer Goods
Transportation
- Courier and Freight Services
- Ridesharing, Taxis, and Limousines
- Airlines and Other Transportation Services
Travel and lodging
- Hotels, Motels, Inns
- Travel Agencies
- Vacation and Property Rentals
Ineligible or restricted industries
Certain regulated or age‑restricted industries may be ineligible, including:
- Adult content and services
- Weapons and munitions
- Certain financial services (such as lending or money transmission)
- Online gambling and similar activities
Eligibility rules may change and can vary by product.
If you have questions about business structures or industry eligibility, our Support Team is happy to help explain how this information is used within CreditStrong.