INTERVIEW ON THE PRICE OF BUSINESS SHOW, MEDIA PARTNER OF THIS SITE.
Recently Kevin Price, Host of the nationally syndicated Price of Business Show, interviewed Alexander Paykin.
The Alexander Paykin Commentaries
Choosing the proper legal structure is one of the most important decisions any new business owner will make. The entity you select affects how you pay taxes, who is liable for business debts, how decisions are made, and how investors will view your company. The three most common structures—LLCs, corporations, and partnerships—each offer distinct benefits and limitations. Understanding the differences in liability, taxation, governance, and startup considerations can help entrepreneurs make an informed and strategic choice.
Liability protection is often the first concern for founders. An LLC provides a strong shield that protects the personal assets of its owners, known as members. If the business is sued or accumulates debt, the members are not personally responsible, provided that company and personal finances remain separate. Corporations offer an even more established form of liability protection. Courts have long recognized the separation between shareholders and the corporation, which is one reason large companies and investor-backed startups rely on the corporate form. Partnerships, however, present a very different picture. In a general partnership, each partner is personally liable not only for business debts but also for the actions of the other partners. Although limited partnerships offer some protection for limited partners, at least one general partner must still assume full liability, which can create substantial risk.
Taxation is another major consideration. LLCs are known for their flexibility because they can be taxed as sole proprietorships, partnerships, S corporations, or even C corporations depending on what benefits the members. Corporations, by contrast, are subject to what is commonly called “double taxation” when operating as C corporations, because the corporation pays tax on its profits and shareholders pay tax again on dividends. An S corporation can avoid this double layer, but the structure comes with strict eligibility requirements regarding ownership and share classes. Partnerships operate as pass-through entities, meaning profits and losses flow directly to the partners’ personal tax returns. This arrangement simplifies tax reporting but can also create “phantom income,” where partners owe taxes on profits even if the business did not distribute any cash.
Governance varies significantly among these structures. LLCs offer a high degree of flexibility and allow owners to create management rules tailored to their needs through an operating agreement. There are fewer required formalities, which makes the LLC an attractive option for small and medium-sized businesses. Corporations follow a more rigid structure involving directors, officers, and shareholders. Regular meetings, formal resolutions, and detailed recordkeeping are part of corporate life. Although sometimes seen as burdensome, these requirements create transparency and predictability, characteristics that institutional investors and lenders appreciate. Partnerships depend heavily on the partnership agreement. Without a well-drafted agreement, state default rules govern decision-making and may not reflect the partners’ expectations, potentially causing conflict.
Startup and operational considerations can also influence the decision. LLCs generally offer a balance of simplicity and protection, making them ideal for closely held companies, real estate ventures, family businesses, and small enterprises. Corporations require more paperwork and ongoing compliance, but they are the entity of choice for companies that plan to scale quickly, raise capital, offer equity compensation, or eventually go public. Partnerships are inexpensive to form and easy to operate at the outset, but their inherent liability risks require owners to trust one another completely and to carefully define their rights and obligations.
In the end, there is no universal “best” choice. Entrepreneurs who want a blend of liability protection, tax flexibility, and operational freedom often gravitate toward LLCs. Those with ambitions for rapid growth, investor funding, and structured governance typically choose corporations. Partnerships appeal most to professional groups or ventures where owners want simplicity and direct control, but they demand careful planning due to the exposure each partner faces. Because the choice of entity affects every aspect of a business’s life cycle, seeking professional legal and tax guidance at the planning stage is one of the smartest steps a founder can take.
