Best Business Structure for Landscaping Businesses

Choosing a business structure is among the most critical decisions landscapers need to make when establishing a new business, along with securing funding for startup costs, setting the service prices, and attracting potential customers.

Each business structure has different tax requirements, and specific structures better protect a landscaping business owner’s personal assets.

A business structure also affects future development and growth.

This article compares the pros and cons of several business structures and offers factors to consider when selecting the best structure for your landscaping service business.

Which business organizational structure is best suited for your landscape business?

Landscapers select a structure in the early stages of business development and describe the details in their business plans.

To determine the best structure for your landscaping and lawn care business, consider the number of business owners, tax and legal requirements, and future business goals.

Business structures affect:

• How much you pay in taxes

• Your personal liability

• The amount of paperwork required to start a business

Consult with a business lawyer and certified public accountant (CPA) to obtain tax advice, file the necessary legal paperwork for business licenses or tax certificates, and properly form your landscaping and lawn care company.

The following list highlights the pros and cons of the most widely used business structures in the landscaping industry.

1. Sole proprietorship

A sole proprietor owns a small business by themselves. It’s the easiest structure for a startup landscaping or lawn maintenance business and requires the least paperwork.

Landscapers operating under a sole proprietorship do not form a separate business entity. As a pass-through entity, business owners do not need to obtain an employer identification number (EIN). They report business income on their personal income tax return.

This structure increases financial risk because business assets and liabilities are not separated from personal ones. Creditors can pursue a business owner’s personal assets to cover business debt.

Experts recommend filing an assumed business name and keeping business and personal expenses separate to ensure accurate record keeping.

Sole proprietorship advantages:

• Easy business setup

• Low startup fees

• Simplified taxes and tax benefits

Sole proprietorship disadvantages:

• No personal liability protection

• More difficult to obtain loans

• Complicated to sell a business

2. Limited liability company (LLC)

A limited liability company is a separate business entity combining elements of a partnership and a corporation. Individual states govern LLCs, so check local LLC regulations with your Secretary of State’s office.

According to the Internal Revenue Service (IRS), most states do not restrict LLC ownership. LLC owners, called members, can include: 

• Individuals

• Corporations

• Other LLCs

• Foreign entities

An LLC’s structure provides pass-through taxation benefits similar to a sole proprietorship but offers personal liability protection like a corporation. LLC members choose how to pay federal tax, whether as a corporation, partnership, or as part of their personal tax return.

LLCs provide flexibility on the number of members and options for paying taxes but incur self-employment taxes unless they file as an S corporation.

An LLC provides limited liability protection. For greater asset protection, landscape professionals need to separate business and personal bank accounts and credit cards and obtain business insurance, such as general liability insurance.

LLC advantages:

• Easier than setting up a corporation

• Protects an owner’s personal assets

• Provides taxation options

LLC disadvantages:

• Limits personal liability protection

• Owners potentially pay self-employment taxes

• More complicated when owners leave or sell the business

3. C corporation (C corp)

A C corporation is a separate legal entity from its owners or shareholders and provides the most personal liability protection.

Since corporations offer stock, the shareholders own the company. Shareholders elect the board of directors, and the board appoints corporate officers to manage the company’s daily operations.

A C corp results in what the IRS terms a “double tax.” A corporation pays corporate income tax on profit, and shareholders pay personal income tax on dividends, which are already taxed at the corporate level.

Growth-minded business owners will form C corps to scale into a large company. This structure attracts potential investors and enables them to raise capital.

C corporations can issue more than one class of stock, such as common and preferred, allowing for easier ownership and management transitions. However, a C corporation’s complexity leads to higher startup costs and additional federal and state requirements.

C corp advantages:

• Provides liability protection to owners

• Structure attracts potential investors

• Ability to raise capital through stock sales

C corp disadvantages:

• Complex business structure

• High initial cost to form a business

• Subject to increased taxation

4. S corporation (S corp)

An S corporation passes corporate income, losses, deductions, and credits to shareholders. Unlike a C corporation, it is not subject to corporate taxation.

S corp shareholders report income and losses on their personal tax returns and pay tax at their individual income tax rates.

This structure provides limited liability protection for shareholders and certain tax advantages. It also potentially reduces self-employment taxes.

S corps face more requirements than C corps. For instance, S corps can issue only one class of stock and cannot possess more than 100 shareholders. As a result, S corps typically are smaller than C corp companies.

S corp advantages:

• Provides limited liability protection to owners

• Avoids corporate tax

• Provides tax advantages through deductions and credits

S corp disadvantages:

• Not suitable for large, growing companies

• Restricts number and type of owners

• Limits stock types

Factors to consider when choosing the right structure for your landscaping business

Consider your company’s unique characteristics and needs when weighing business structure advantages and disadvantages.

For instance, how do you want to manage your business? Can you handle a high or low amount of risk? Where do you see your business in five or 10 years?

Consider these factors when selecting a business structure:

• Size of business: Owners of a one- or two-person lawn mowing business generally select a sole proprietorship or LLC because it’s easier to set up. Mid-sized businesses often choose an LLC or S corp structure, while large business owners typically opt for a C corp structure.

• Growth plans: Entrepreneurs aiming for rapid growth select a structure that provides room to grow. Large businesses choose C corps because it attracts investors and allows them to raise capital for a growing business.

• Risk tolerance: Your risk tolerance plays a major role in what type of legal structure you choose. A sole proprietorship carries the most risk because it doesn’t provide liability protection. While that doesn’t bother some owners, those with a low risk tolerance should choose a structure with greater asset protection.

• Tax implications: The type of business structure determines which tax forms to file, resulting in varying financial impacts. Pass-through entities, such as sole proprietorships, LLCs (unless owners choose corporation filing), and S corps enable owners to pay business taxes through their personal tax returns. A C corp pays corporate tax, unlike other business structures.

It’s possible to change a business structure down the road, but it’s not a simple task. Reduce hassles by choosing a structure that will meet your future business needs.

Use the right software to grow your business

It takes much more than just the right business structure to run a successful landscaping business.

Profitable landscaping services require streamlined:

• Estimating

• Job costing

• Invoicing

• Reporting

Aspire landscape business software provides landscapers with end-to-end functionality to seamlessly connect operations, automate workflows, and increase efficiency.

Integrated solutions deliver precise data and real-time insight, enabling landscapers to make timely, informed decisions to accelerate profit and growth.

Ready to take the next step? Request a demo today.

Frequently Asked Questions (FAQs)

Find the answers to commonly asked questions about starting a landscaping business.

Is a sole proprietorship or an LLC better for a landscaping business?

Whether you choose a sole proprietorship or an LLC depends on your tax and liability preferences.

Sole proprietors report business profit on their personal tax returns. This structure provides the least legal protection because owners are personally liable for business debts.

In an LLC, an individual or multiple owners choose how to file taxes, including as a sole proprietor, partnership, or corporation. An LLC provides more personal asset protection.

Is a landscaping business LLC better than an S corp?

Both LLCs and S corps provide limited liability protection. They differ in ownership and how taxes are paid.

Individuals and partners form an LLC to establish a separate business entity, while shareholders own an S corp.

LLC owners choose from several tax filing options. By contrast, S corps pass income, losses, deductions, and credits to shareholders.