This will depend on many factors as there are benefits and drawbacks to each legal entity. We’ll list some basic descriptions for each main type of legal entity.
Sole Proprietorship – These can be ideal for very small low risk businesses with no plans of growth.
Partnership – There are two common kinds of partnerships: limited partnerships (LP) and limited liability partnerships (LLP). These are ideal for professional groups such as attorneys.
Limited Liability Company (LLC) – An LLC offers the owner of this entity certain legal protections against lawsuits such as the separation of business assets from personal assets. LLC’s are ideal for small businesses that carry some risk of potential lawsuits.
Corporation – Corporations are ideal for medium to high risk businesses, businesses that need to raise money through venture capital or seed funding, or businesses that wish to eventually go public. There are many types of corporations such as an S-Corp, C-Corp, etc. Each of these sub-classifications of corporations have their own tax purposes. It’s ideal to discuss these matters with an attorney or CPA.