Entity Type For Your Business

Written by Eric Petersen, CIC

One of the most basic, yet crucial risk management decisions a tree care company owner needs to make is how to legally set up their business. The goal is to creating a separation between the business and your personal assets so that a terrible accident or lawsuit doesn’t destroy all of your wealth. We always recommend discussing this with your business attorney and accountant, but below are some of the most common business entity types to help you determine which will work best for you and your tree service.


Sole Proprietorship: Sole proprietorship is the easiest to form, as it is just you. You as the individual and taxed personally. There are no special forms to fill out, but the downside is that the bank does not like to lend money to an individual person for business pursuits. Another downside to a sole proprietorship is unlimited liability because there is no legal business entity, so all of your personal assets are dragged into the business activity.

Partnership: A partnership is formed when 2 or more people are owner operators involved in the business. There is nothing legal that has to be set up as you are still taxed personally. Each partner has the authority to enter into contracts, take out business loans, and change the operations. Each of you will be held responsible for business activity. For a sole proprietorship and partnership, most use DBA (doing business as) to identify the name of the business. Just like sole proprietorships, there is a lot of personal liability for each of the partners, so while it is easy to set up, please understand there is more liability on the line.

Corporation (C or S): A corporation is the most complex and structured of the business entity types. The two most common forms of corporation are C and S Corporations where the main difference lies in how the organization is taxed. A C Corporation is taxed as a business and you, the owner, are viewed as an employee, so you also get personally taxed. With a S Corporation, the business does not get taxed, but rather it trickles down to you as an individual. The main benefit with a corporation is, when set up correctly, your personal assets are kept safe, apart from the business operations. There are requirements with a corporation that do not exist with other business entity types, such as the need for annual meetings with corporate meeting minutes being taken. You should employ the help of a CPA and attorney to set up a C or S corporation.

Limited Liability Company (LLC): A limited liability company is fairly easy to set up and probably the most common business entity type amongst tree services. There is less paperwork to get an LLC started and less requirements to keep it going than the corporation, however, like the corporation, if it is done properly, your business legal liability is separated from your personal assets. You will be taxed personally as the owner of the LLC. 

One point to consider when it comes to choosing the correct business type for your company are the workers compensation laws of your state. Work Comp policies for sole proprietorship and limited liability companies typically automatically exclude the owner while corporations are the opposite and the owner’s are included to start with. 

Lastly, ensure that all business assets, vehicles, equipment and properties are purchased by the proper entity and titled accordingly. We see a lot of vehicles that are titled in the owner’s personal name despite the business operating under an LLC. This eliminates the legal advantage to having the LLC as the personal assets of the owner are tied to that vehicle and not the LLC. 

To close, of all the decisions you make while owning your tree service, choosing the proper legal entity is one of the most important. Make sure to get the proper legal advice and understand the options that you have available to limit the liability and tax implications of the various business entity types.