For many new businesses, the best initial ownership structure is either a sole proprietorship or, if more than one owner is involved, a partnership. A sole proprietorship is a one-person business that is not registered with the state as a limited liability company (LLC) or corporation. You don't have to do anything special or file any papers to set up a sole proprietorship. You create it just by going into business for yourself. Legally, a sole proprietorship is inseparable from its owner, i.e., the business and the owner are one and the same. This means the owner of the business reports business income and losses on his/her personal tax return and is personally liable for any business-related obligations, such as debts or court judgments. Similarly, a partnership is simply a business — owned by two or more people — that has not filed papers to become a corporation or a limited liability company (LLC). You don't have to do anything special or file any papers to set up a partnership. The arrangement begins as soon as you start a business with another person. As in a sole proprietorship, the partnership's owners pay taxes on their shares of the business income on their personal tax returns, and are each personally liable for the entire amount of any business debts and claims. Sole proprietorships and partnerships make sense in businesses where personal liability isn't a big worry, for example: a small service business in which you are unlikely to be sued and for which you won't be borrowing much money make sense.