When beginning a business, you must decide what form of business entity to establish. Your form of business determines which income tax return form you have to file. The most common forms of business are the Sole Proprietorship, Partnership, Limited Liability Company (LLC), Corporation and "S" Corporation. Legal and tax considerations enter into selecting a business structure.
A sole proprietorship is the form of business entity with the least amount of legal formalities. In a proprietorship, the owner assumes sole responsibility for the operations and finances of the business, including profit and loss. In the proprietorship form of business entity, the owner's personal property is tied directly to the business; therefore, the owner assumes unlimited risk of his personal assets.