If you’re a sole proprietor in Maine considering formalizing your business or just starting out, it’s important to understand the basic business structures available. The right structure can affect your taxes, liability, and credibility.
In a recent webinar hosted by the Maine SBDC in partnership with Opticliff Law, Business Advisor Jenn Dobransky and attorney Andrew Krauss explained the most common structures:
Sole Proprietor
The default structure for anyone doing business without formally registering a legal entity with the state. It’s simple and low-cost but offers no personal liability protection.
Limited Liability Company (LLC)
A popular choice for small businesses and freelancers. LLCs protect your personal assets and offer flexibility in how you’re taxed—either as a sole proprietorship (if single-member), a partnership (if multi-member), or by electing to be taxed as a corporation. LLCs are relatively easy to maintain with fewer formalities than corporations.
Corporation (Inc.)
A more complex structure commonly used by businesses seeking outside investment or planning for significant growth. Corporations provide liability protection, can issue stock, and may attract investors. By default, they are taxed as C-Corporations, but they can elect S-Corporation status to reduce self-employment taxes while retaining liability protection.
| Entity Type | Liability Protection | Tax Treatment | Best For |
| Sole Proprietorship | No | Personal income tax | Testing an idea, early-stage side gigs |
| LLC | Yes | Flexible | Most small businesses and freelancers |
| Corporation (Inc.) | Yes | Corporate (C-Corp) or S-Corp election | Growth startups, investor-backed firms |
When Should You Form an Entity?
You don’t need to form an entity the moment you have an idea, but you should act before taking on significant risk. Consider formalizing when:
- You have paying clients or contracts
- You own personal assets you want to protect
- You’re working with a partner or co-founder
- You’re applying for a loan or seeking investment
What Comes Next?
Once your structure is in place, take these next steps:
- Open a business bank account
- Get industry-appropriate insurance
- File your annual report (LLCs in Maine pay $85)
- Use written contracts instead of handshake deals
- Keep personal and business finances clearly separated
Tax Implications to Know
Forming an LLC or corporation may change how you’re taxed. A single-member LLC is usually taxed on your personal return via Schedule C. Some LLCs elect S-Corp status to reduce self-employment taxes.
Also, taxes will no longer be withheld automatically. Most business owners must estimate and pay federal taxes quarterly. These changes often surprise new entrepreneurs, so it’s wise to work with an accountant to stay compliant.
Final Thoughts
Choosing the right structure can affect everything from your tax bill to how protected your personal assets are. While an LLC is a common choice, your best option depends on your goals and the stage of your business.
Maine SBDC advisors can help you evaluate which structure is right for you. We don’t offer legal services, but we do provide no-cost, one-on-one advising. If you’re unsure about liability, taxes, or ownership agreements, it’s a good time to consult an attorney.