Here are some basics:
The first reason to create any Tax Entity type and stop working under a Sole Proprietorship, comes down to Separation/isolation of risk and protection of assets. As a sole proprietorship, you and your business are the same entity. If you have a legal issue in the business, they are also suing you personally. If you have a private legal issue, they will sue for your business assets, as well.
As a Sole Proprietor, you can take any money from the business whenever you want to and that taking is not by itself the taxable event; and even if you don't take any money out, you still report the taxable income and pay income taxes on it. This is called Pass Through Entity. You cannot be on payroll. You are not your own employee.
Next, you consider forming an entity.
LLC = create a bit of separation from your personal life, by creating an entity for business. This affords you some protection, personally. This is a State and Legal construct. For the Feds, you still would file taxes as a Disregarded Entity = sched C. But now you have a legal entity. Example: In Montana, you buy property and title them to an LLC; you might put up to $5m in one LLC, or one property in each LLC. Now, if one building creates a Risk issue, all of the rest of your properties and your Personal life are protected. They sue the owner of the property = that one LLC. This also is a Pass Through Entity.
Now, what happens when Others want to join you? They are partners, or members, of that LLC. You cannot have a Sole Proprietorship with "others" (except under very narrow conditions called Joint Venture). Remember, the LLC will insulate you each from the others' mistakes and their Personal issues, up to a point.
Or, you want to elect to be treated as a Corporation. There is C Corp and S Corp. There are Tax regulation advantages to the various entity types. Also, employees start to come into consideration; you can form a corporation and develop a transition plan, so that the employees ultimately own the business when you want to leave.
Because under a corporate structure, you are an employee. The US Supreme Court tells us Corporations are their own Persons; you know the corporation cannot do any work. It hires Employees. It is Separate from you. It hires You.
For instance, if I have 10 rental properties in 2 LLC, rental income is not the same as Payroll and is not taxed as payroll. If I form an S corp and even am the Sole Shareholder, and then put the property in the name of the S Corp, well, first of all, anyone doing the work of the corporation must be paid through payroll at a Reasonable rate for services performed. You just cranked up the type of taxes to be paid and now you fall under labor laws and employment rules. But, it also opens some other avenues, such as Corporate Owned vehicles.
If I ran a tow truck operation, I sure would want to operate as an S Corp and not a Sole Proprietorship. If I owned and managed my own property, I would never use an S Corp structure.
An S Corp is a Pass Through Entity, for the Reportable taxable income; this is after payroll is taken as an expense. This tracking and reporting is "by shares owned". If you work harder than I do, and if you and I are 40/60 shareholders, then you get 2/3 of anything I also take from the business as Distribution, which is why Payroll might be a higher Wage rate for you = to compensate.
A C Corp pays its own taxes. That results in reportable income to the shareholders who also have tax considerations. That's why you hear the phrase "double taxation" used, and this is why it is in the News right now for Tax reform.
No one on the internet can give you more guidance than going to your own CPA and a lawyer. They need to review your business, your financials, your Life, to guide you. And get a second opinion. I have seen many people that were "guided" into forming C Corps, unnecessarily.
