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Which Type of Business Structure Should a Freelancer Form?

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When making the decision to turn to freelance, you might get carried away and think that all structures have been left in the office. And the biggest decision you have to make in a day is whether you’ll wear pajamas or get dressed.

However, there is one big decision that you still have to make – no worries, you don’t have to put your nomad lifestyle on hold. Whether you’re at the beach or on the sofa, it doesn’t matter. This post will help you understand which type of business structure is for you and how to form your business remotely! 

Business Incorporation 

When incorporating your business you have to choose between different available structures. A structure determines your business’ paperwork, organization, taxes, and personal liability. 

This article will explore each of the options available to you, their pros and cons. By the end of it, you’ll have a good idea of which business structure is the best for your unique needs. 

What’s a Business Entity?

A business entity is a legal formation that your business will classify under. 

Since you’re the big boss around here, you’ll choose which type of business you want to form. Keep reading to find out what the four main types of business structures are, and which one is most suitable for you. 

Main Four Types of Business Structures in the U.S.

  • Sole Proprietorship
  • Partnership
  • Limited Liability Company (LLC)
  • Corporation

Do I Need to Form a Company as a Freelancer?

This is a really relevant question, as many freelancers go about their day without even batting an eyelid about any legal paperwork. 

This can be the easiest option, to just turn a blind eye. But will mean that you’ll be given a business structure by default. And the default option usually isn’t the best option. 

Sole Proprietorship

This is an option for freelancers that are working alone. It’s also the default option if you choose not to register your business. 

This is a good option for you if you’re just starting out. But not a long term solution if you want to grow a successful business. 

It’s recommended for low-profit freelancers. Which you probably don’t want to be. Not forever anyway.  

Pros of a Sole Proprietorship:

  • Low-cost formation and maintenance

Cons of a Sole Proprietorship:

  • You, personally, are held completely liable for any debts and liabilities
  • Lawsuits will be filed against you
  • No professional branding and credibility 
  • Limited growth potential
  • No tax benefits


A partnership is very similar to a Sole Proprietorship, the difference is that it’s an option for two or more freelancers working together. 

Also recommended for low-profit business ventures. 

Pros of a Partnership:

  • An official partnership agreement is not required
  • Low-cost formation and maintenance 

Cons of a Partnership:

  • No official division of ownership, investment, authority 
  • Owners don’t have limited liability – you’re liable for both your and your business partners debt, no matter who accumulated it
  • No tax benefits
  • No professional branding and credibility
  • Limited growth potential

Limited Liability Company (LLC)

The middle ground between a sole proprietorship and a corporation… An LLC is a perfect hybrid. 

This is the most popular option for freelancers and digital entrepreneurs. It offers the most flexibility, tax efficiency, and gives you the benefit of liability protection. An LLC will protect your personal assets in case of a lawsuit or accumulated business debt. 

An LLC is recommended for businesses that are planning to expand and increase profits. The best and most popular option for most businesses.

Pros of an LLC

  • Low-cost formation and maintenance
  • Personal liability protection
  • Tax benefits 
  • Growth potential
  • Credibility and consumer trust

Cons of an LLC

  • More paperwork than a Sole Proprietorship or a Partnership

What Does Limited Liability Mean?

As a business owner, limited liability will protect you when things don’t go as planned with your business. For example, accounting liabilities might include things like tax payments, debts, fines. Legal liabilities might include things like damages and punishment for negligence and mismanagement. 

In business, limited liability means that your business is treated as a separate entity from you. 

Limited Liability Doesn’t Make You Invincible

There are several circumstances under which you will become personally liable. 

Misuse of Funds

As a business owner, you need to separate your spending and expenses from your business. The best option is to have a personal bank account and a bank account for your LLC. If you don’t keep a clear separation between you and your business’ accounting, you might become liable for your business’ debts. 

Fraud and Criminal Activity

Of course, if you use your business to commit fraud or any other criminal activity, you will be liable and can’t hide behind limited liability.

How to Form an LLC

LLC formation is easy, fast, and can be done 100% remotely. Simply choose the right package, fill out a quick form, and we’ll take care of everything else for you. Check out our packages here


The most complicated out of the four to sink your teeth into. But, don’t get too intimidated by the title – a Corporation isn’t only for the big companies with huge offices, they can also benefit smaller businesses too!

A corporation differs from an LLC. When you form a corporation you can issue stocks to raise capital, and sell percentages of your business to the shareholders. The shareholders can also sell and transfer their shares in the company. 

This is a great option for attracting outside investors. 

Pros of a Corporation:

  • Limited Liability
  • Attracts outside investors with stocks and shares
  • Tax benefits
  • Growth potential

Cons of a Corporation:

  • Rigid structure
  • Complicated paperwork
  • More expensive to maintain

Get Advice on Company Formation

Choosing between an LLC and a Corporation can be confusing. We offer consultations as part of our company formation packages. Our friendly team will guide you through the process and answer any questions you have.

Form Your Company 100% Remotely

To get started visit our company formation pricing page here.

About Author

Rick Mak

Rick Mak

Rick Mak is a 30-year veteran businessman, having started, bought, and/or sold more than a dozen companies. He has bachelor's degrees in International Business, Finance, and Economics, with masters in both Entrepreneurship and International Law. He has spoken at hundreds of conferences around the world during his career on entrepreneurship, international tax law, asset protection, and company structure. Business Anywhere Editorial Guidelines

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