Whichever type of business entity you chose, having a business entity in the first place is important. There are basically three types of business entities, and they are a Corporation, a Limited Liability Company, and a Sole Proprietorship. Each entity has it's own advantages and disadvntages.

     
• Corporation - If you see a business name with "Inc." after it, it means that that particular business has incorporated, and is now a corporation. A corporation is a leagl entity that is entirly seperate from the business owners. In essance, a Corporation is a virtual person. A corporation can buy things, get sued, own homes and vehicles, get loans from the banck, etc. The biggest benefit in turning your business into a corporation is that you are protected legally, just in case something were to happen. If the business was to default on a loan, your personal assets such as your home and car, would be safe.
       When your incorporate a business, the ownership of the company is converted into stocks. The people who own stock in the company are essentially part owner. The founders of the company usually own the most stock. However, if necessary, you could sell shares of your business's stock in order to raise capital. Your business can have 2 shareholders, or 75 shareholders.
       Although incorporating your business provides you with great legal protection, running a corporation can be expensive. You'll need to hire an attorney to make sure that you are not breaking any corporation laws, and incorporating your business requires more accounting and tax preparation services. There are many compaines out there that will incorporate your business for a low cost. If you search for "Incorporate Services" on google, you'll find thousands of different companies.
       
• Limited Liability Company (LLC) - The LLC entity allows small business owners to enjoy the liability protection that becoming incorporated offers, yet also avoids double taxation on income. The income of a corporation is considered to be double-taxed, because first the corporation pays taxes on it's income, and then when the earnings are distributed to the shareholders in the form of dividends, the shareholders are then taxed. So the earnings of a corporation can end up being taxed twice. With LLC's, this does not occur. The income or loss of your business of your business would be included on the shareholders personal tax return, so it only becomes taxed once.
       Like a Corporation, a LLC's ownership is converted to stocks, and the people who own stock in the business, are part owners of the business. LLC's can have an unlimited number of stock holders. LLC's can also get loans, buy property, buy vehicles, etc. An LLC can do all this, and if worst comes to worst, your personal assets would be protected.
       
• Sole Proprietorship - Sole Proprietorships are the easiest type of business entity to start, but offer the least protection. The businesses income, losses, expenses, etc. are all recorded on your person income tax return. If you have suffered any financial losses because of your business, this can offset income you have earned from other activities, such as your job. With a sole proprietorship, you call all the shots.