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For tax and legal reasons, you'll need to decide on the form (legal structure) your business will take. It will be an important element of your business plan. Here's where professional advisors play a key role. Consult with your attorney and accountant before you decide what form to use for your new business. They can advise you on tax advantages and which form offers you the best protection of personal assets.

Generally, the legal structures for businesses fall into one of five broad categories: sole proprietorship, partnership, corporation, S corporation, and limited liability corporation. Your choice of legal structure will affect your exposure to personal liability, how you draw profits and pay taxes, your ability to raise capital, and how you run the business.

Sole Proprietorship: Generally the quickest, easiest way to start a business. It is an unincorporated business owned by one individual. Profits and losses are included on your individual tax return, and if someone sues your business, your personal assets may be subject to those claims.

Partnership: An association of two or more people working as co-owners of a business with the intent of making a profit. This increases the complexity and amount of paperwork. In addition, general partners can share unlimited liability and each is usually responsible for the acts of the other.
Corporation: an entity that functions somewhat like an individual, legally and for tax purposes. Setting up a corporation involves numerous filings and meeting specific organizational regulations, such as appointing a board of directors. The corpporation, while minimizing personal liability for owners, may not protect you from a lawsuit. Also, with new and small corporations, many lenders require officers' personal guarantees.
S Corporation: provides the advantages of a corporation, but is treated as a flow-through entity for income tax purposes. The owners report income individually on their personal income tax returns and owners may deduct the corporation's losses against other sources of income.
Limited Liability Corporation: distributes income and tax responsibility among partners, but the partners are not personally liable for debts. This is a relatively new legal form of business, so be sure to consult a knowledgeable attorney for the most up to date information.