Across the country, small business plays an essential role in local economies. They provide specialized products and services to a targeted audience, often in a niche market that is not served by large national companies. They are usually independently owned and operated, with fewer than 500 employees.

These companies also offer financial advantages to their owners, who stand to profit more if the company is profitable and can afford to cover expenses. In addition, small business owners can qualify for a long list of tax deductions. But running a small business can also be more difficult and riskier than working for a large corporation, as it is common for small businesses to put their own money into the venture and may lose it all in the event of a financial disaster.

In the United States, a small business can take on many different legal forms, from partnerships to C corporations to sole proprietorships. Choosing the right structure is an important decision that affects taxes, liability, and the ability to grow.

Regardless of the structure, the company must meet certain criteria to be considered a small business. To qualify, the company must have fewer than 500 employees and less than $5 million in annual revenues (revenues are averaged over the course of three years). It must be an independent business that is not dominant in its field of operation. Lastly, it must be classified by the North American Industry Classification System (NAICS) code, which is used in the US, Mexico and Canada. This can be determined by using the SBA’s tool or referencing its table of size standards for specific industries.