Business entities are legal structures that define how a business operates and is recognized by law. Common types include sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. Each type has its own advantages and disadvantages regarding liability, taxation, and management. Choosing the right business entity is crucial for entrepreneurs, as it affects personal liability and tax obligations. For instance, a sole proprietorship offers simplicity but exposes the owner to personal liability, while a corporation provides limited liability protection but involves more regulatory requirements. Understanding these differences helps business owners make informed decisions.