"Choosing a business entity is like looking into the crystal ball of your company's future," says Chip Wry, a member of Waltham, Massachusetts-based law firm Morse Barnes-Brown Pendleton. Before you can move toward that future, you have to know the basics. We offer a primer, compiled with the help of Wry and other attorneys who have collectively brought thousands of companies through the process. Consult legal and financial experts before making any final choice--there are exceptions and caveats to every rule here.

First, here are a few definitions

Sole Proprietor: Default option for many founders, as the owner and the business are one. Owner bears full legal liability in a lawsuit.

LLC: A hybrid vehicle, an LLC shields the owner from some business liability, but all tax burdens (or losses) flow to the owner. Not subject to separate corporate tax.

Launched as LLCs:Snap (started as Future Freshmen LLC); Smartypants Vitamins

S corp: Created by Congress in 1958, S Corps combine aspects of a partnership and a corporation. Owners enjoy many legal protections but generally face all tax burdens (or losses). IRS rules allow only one class of stock and a maximum of 100 shareholders, all of whom must be U.S. citizens or domestic trusts or estates.

Converted to S corps: McIlhenny Company; CoorsTek; Ferrellgas

C corp: These entities create maximum separation between businesses and owners. Subject to corporate tax, they're the ideal vehicle for outside investors.

Launched as C corps: Zipcar; Twilio

B corp: Not a legal entity, but a third-party certification that shows your company prioritizes its social mission.

Famous B corps: Warby Parker; Etsy; Patagonia

Now, here's how to decide which entity is right for you

Do you think you'll get sued?

Yes: LLC, S corp, or C corp
Each offers your personal assets a level of protection from legal action arising from your business activities.

No: Sole proprietor
You're fully liable.

Do you expect to operate at a loss for the first few years?

Yes: LLC or S corp
You and other owners might be able to use losses from the business to offset other income on personal taxes.

No: C corp
Any losses, or profits, stay within the corporate entity.

Will you invest profits back ın the biz?

Yes: C corp
Profits are taxed only at the corporate level, currently up to 35 percent, unless they are distributed, in which case shareholders face additional tax on their dividends.

No: LLC or S corp
These are called pass-through entities. Absent major policy changes, profits are taxed at the individual owner level as ordinary income, up to a 39.6 percent tax rate. You'll be hit with that tax whether or not any money gets distributed to you personally.

Do you have any non-U.S.-based owners?

Yes: LLC or C corp
Foreign-based owners are not allowed to hold stock in an S corp, nor are partnerships or other entities.

No: LLC, C corp, or S corp
If all owners are U.S.-based, any structure could be appropriate.

Will you crowdfund/raise outside investor money right away?

Yes: C corp
Professional investors will insist on a C corp, which permits different classes of common and preferred stock.

No: C corp, S corp, or LLC
Bootstrapping, even with friends and family investment, leaves you the full range of structural options.

Are you planning to issue equity awards to employees?

Yes: C corp
This structure means that no corporate profits will pass through to owners or other types of investors, including employee equity holders.

No: S corp and LLC
Equity equals ownership, so employees' tax situations could be complicated by their receiving equity from a pass-through entity like an S corp or LLC.

Will you wait at least five years to sell or go public?

Yes: C corp
Certain C corps can issue qualified small-business stock, the shareholders of which face no taxes on gains up to $10 million, or 10x the basis, whichever is greater, if it's held for five years or more. Not all industries get this tax treatment; service and finance companies are generally excluded.

No: S corp
This will give you more flexibility in the structure of the sale as an asset or stock purchase. Unlike an LLC, it can also be acquired for stock tax-free.

Are you committed to a social mission?

Yes: Consider B corp
This is an outside certification. By applying to become a B corp early in your company's life, you are signaling your commitment to corporate social responsibility from the get-go. This can win you exclusive access to certain types of talent and investors. It does, however, require ongoing fees for maintenance of the certification. Also consider becoming a public benefit corporation, available in roughly 30 states. You should have a base of S corp or C corp. This certification requires directors to consider public benefit as well as shareholder value in executing fiduciary duty.

No
Any of the traditional options will suffice.

If you're committed to a social mission, have you been operating for at least 12 months and do you have money for annual fees?

Yes: Keep going with B corp
Fees range from $500 to $50,000, depending on annual revenue.

No
Stand down. You're not quite ready for a B corp certification yet.

Do you find this decision entirely too taxing already?

Yes: LLC
You can easily convert to C or S corp; but if you go the other way, you could incur a large tax burden, as you may be required to liquidate assets.

No
Bear in mind you will face ongoing legal and accounting costs in S and C corps.

Sources: Wry; Babak (Bo) Yaghmaie of Cooley in New York City; Joe Wallin of Carney Badley Spellman in Seattle; Charley Moore, former Silicon Valley startup lawyer and founder and CEO of Rocket Lawyer.

FROM THE JUNE 2017 ISSUE OF INC. MAGAZINE