Choosing what type of business structure to use is not as simple as deciding whether you’d rather have Inc. or LLC after the name. You'll need to take legal, tax and paperwork implications into consideration before deciding if John Doe's Generic Name Company should be a sole proprietorship or a corporation. Here's a brief breakdown of four common business structures.

With a sole proprietorship, an individual is the sole owner and all business decisions rest with him or her and, in some cases, the spouse. A sole proprietorship is the easiest business structure to set up and was chosen by Tommy Thompson's Lemonade Stand.

From a legal standpoint, Tommy Thompson the person and Tommy Thompson's Lemonade Stand are one and the same. He’s personally responsible for all business debts and lemonade-related lawsuits. Despite the bitter legal liability, taxes are easier than making a glass of fresh-squeezed lemonade. Income and losses are filed with personal taxes at personal tax rates.

There are two types of partnerships: general partnerships and limited partnerships. In both, two or more people partner to form a business, but in a limited partnership one individual is in charge and runs the business while the other partner(s) is nothing more than a passive investor (i.e. the person with the money). General partnerships are easier to setup and run than LLCs and corporations, though doing business as a limited partnership can be just as complicated as a corporation.

Ricardo and Sanchez's Scuba Gear and Dive Center chose to file as a partnership. If Ricardo and Sanchez are general partners then they are both personally liable for all business debts and obligations. If Ricardo is the general partner and Sanchez is the limited partner, Ricardo is personally liable for all debts and obligations, but Sanchez is only liable for the money he invested. With both types of partnerships, profits and losses are filed with the partners' personal taxes.

Limited liability companies are basically a combination of corporate and partnership business structures. LLCs are founded by an owner or owners, called members (like a partnership), but the owners enjoy limited legal liability (like a corporation). Starting and running an LLC is easier than for corporations, but more complicated than sole proprietorships and partnerships.

The LLC structure was chosen by General Construction Contractors LLC. The members, in most cases, aren't personally responsible for the business' debts or obligations. That doesn't apply if a member does something fraudulent or illegal (i.e. pocketing taxes withheld from employees), personally guarantees a business loan or debt, treats the LLC as an extension of personal affairs, or personally injures someone (i.e. runs over an old lady in a vehicle). LLC owners file taxes as individuals.

Corporations are treated as separate entities from their owners. Corporations issue stock to shareholders in exchange for money, property or both and are the most complicated business structure. There are two main types of corporations: C corporations and S corporations, and both offer legal liability similar to an LLC.

Multinational Chocolate Candy Company (MCC Co.) chose to file as a C corporation. Income and losses for MCC Co. (and all C corporations) are reported on a corporate tax return (separate from owners and shareholders). This means that corporations' profits are taxed on the corporate return and then taxed again when paid out to shareholders as dividends. The dividends are reported by shareholders on their personal returns--a form of taxation known as double taxation. However, profits are split between the corporation and shareholders, which reduces each shareholder's tax liability.

Family-Owned Sewage Treatment Co. (FOST Co.) chose to file as an S corporation. For FOST Co. (and all S corporations) profits or losses are not taxed on a corporate return, but are taxed on the shareholders' and owners' personal tax returns. This avoids double taxation and allows the profits to be taxed at personal tax rates. This can be beneficial, but the more an individual shareholder makes, the higher the tax rate.

Editor's Note: All business names are intended to serve as examples only. They are not meant to represent actual businesses. Any similarity to actual businesses is purely coincidental.

Sources: entrepreneur.com; irs.gov; nolo.com; inc.com; business.gov; sba.gov