Mind Your Own Business

07.24.2025

By Attorney Adam Sorrentino

Whether you are inheriting a business, purchasing a business, or starting your own, the differences between types of business can be intimidating. There are many different legal forms that a business can take. It is important to know the different options, and their various benefits and drawbacks.

The four most common types of businesses in Wisconsin are: (1) Sole Proprietorships, (2) Partnerships, (3) Limited Liability Companies (“LLCs”), and (4) Corporations.

Sole proprietorships are not independent legal entities. Typically, a sole proprietorship exists after an individual begins “doing business.” These types of businesses generally do not need a separate federal or state tax ID number and do not file separate income tax returns from the individual owner (but they may require other licenses or permits). The main drawback of a sole proprietorship is that there is no liability protection. This means that the owner can become personally responsible for any liability incurred by the business.

Partnerships come in several different forms and can be created formally or informally (similar to a sole proprietorship). The first type is called a “general” partnership, which is formed by two or more persons carrying out a business. A partnership can be formed by a contract, oral agreement, or even by the conduct of the parties alone. In a general partnership, it is important to know that the partners are still personally responsible for any liability incurred by the partnership.

The next form of a partnership is a “Limited Liability Partnership.” This type of partnership must be registered with the Wisconsin Department of Financial Institutions. It also needs its own federal and state tax ID numbers. It provides some liability protection to the partners.

The final form partnerships take are the “Limited Partnership.” This partnership typically has a “general partner” and one or more “limited partners.” The general partner is responsible for managing the business and is usually a corporation. The limited partners are typically individual investors with less active roles. For Limited Partnerships, the general partner will be responsible for the business’ debts and liabilities, while the limited partners will not.

Limited Liability Companies (LLCs) have become one of the most popular options to create a business since it was adopted by Wisconsin in 1994. The LLC’s popularity stems from its increased flexibility in organization, tax reporting, and management. An LLC requires Articles of Organization to be filed with the Wisconsin Department of Financial Institutions, but its requirements are more informal than corporations. Most often, LLCs will also require a federal and state tax ID number. LLCs are generally managed by “members” or “managers.” The structure and procedures of an LLC are typically outlined in an operating agreement. These documents are important to establish members’ roles, the business’ operations, and ensure liability protection for its members.

Finally, the Corporation. Corporations are created by the filing of articles of incorporation with the Wisconsin Department of Financial Institutions. They also require separate federal and state tax ID numbers. By default, corporations are created with three levels of management. First, shareholders create and own the company. The shareholders then elect the board of directors who broadly direct the management of the corporation. The board of directors then typically appoint officers who perform the day-to-day functions and management of the business. Corporations typically require bylaws and other formalities that can make them more rigid than most entities. Corporations are also able to elect different tax structures if certain legal requirements are met.

There is no “one-size fits all” option when creating a business. To ensure you select the right format for your business it is important to contact an attorney or tax professional at your earliest convenience to determine what steps to take next.