One of the most important parts of starting a small business is considering what type of corporate structure may be the best fit for you.
When we work with business owners, we help them understand the pros and cons of the various business structures and show them how to evaluate what choice may work best for them. Some business structures have fewer start-up costs than others. But for some business owners, liability is a bigger concern than cost. Take our short quiz and see how much you know about business structures.
“The simple believes everything, but the prudent gives thought to his steps.” Proverbs 14:15
1. The most common business structure in the United States:1
A. Partnerships
B. Sole Proprietorship
C. Corporations
D. Franchises
2. Corporations offer the strongest protection to their owners from personal liability, but the cost to set up and operate a corporation is generally higher than other structures.2
True
False
3. With “pass-through” income, the business reports its income on the individual income tax return, and it’s taxed at individual tax rates. Which one of these corporate structures would NOT have pass-through income?3
A. LLC
B. Sole Proprietorship
C. S-Corporation
D. C-Corporation
4. You’re automatically considered a sole proprietor if you conduct business but don’t register as a formal business entity.2
True
False
5. Marci wants to open a baking business while still working her current job. She anticipates the business will generate between $1,000 and $2,000 a month in revenue. Which business structure should she consider?4
A. Partnership
B. S-Corporation
C. Sole proprietorship
D. C-Corporation
Types of Business Structures
Type of Business | No Employees | Small Employer | Large Employer |
Sole Proprietorships | 86.6% | 12.9% | 1.4% |
Partnerships | 7.4% | 11.8% | 8.3% |
S-Corporations | 4.6% | 50.5% | 8.1% |
C-Corporations | 1.4% | 24.8% | 81.2% |
Total | 100% | 100% | 100% |
6. The key difference between an S-Corporation and a C-Corporation is:2
A. S-Corporations cannot have more than 100 shareholders, and all must be US citizens.
B. C-Corporations are generally less expensive to operate.
C. S-Corporations are structured to grow faster than C-Corporations.
D. S-Corporations operate as not-for-profit companies.
7. Members of an LLC are considered self-employed but don’t have to pay taxes toward Medicare and Social Security.2
True
False
8. There are several benefits to owning a franchise, but there might be some disadvantages. Which of the following could be considered a disadvantage?5
A. The franchisor can help find a location.
B. The franchisor will help with training and operations.
C. The franchisor will charge ongoing franchise fees.
D. The franchisor can work with you to obtain building permits, etc.
9. Small businesses created fewer jobs than large businesses from 2000 to 2019.1
True
False
10. A small business is defined as an independent business having fewer than 500 employees. Small businesses comprise what percentage of all firms in the U.S.?1
Roughly 50%
99.9%
Nearly 90%
Less than 25%
Source: SBA.gov
- U.S. Small Business Administration, October 2020. (Most recent information available.)
- SBA.gov, 2023
- TaxFoundation.org, 2023
- SmallBusiness.ca, 2023
- UpCounsel.com, 2023
Answer Key:
- B
- True
- D
- True
- C
- A
- False
- C
- False
- B
8-10 Correct: Awesome. You could give Warren Buffett a run for his money!
5-7 Correct: Good job. But you still may have a few things to learn.
0-4 Correct: Hmm…you might need to brush up on your business structure knowledge.
