What type of business entity is best for your business will be determined in part by the number of people who will own the business and the services or products it will provide. By definition, only single-owner businesses can operate as a sole proprietorship so if your business will be owned by two or more people, you will need to consider other structures. If your business will engage in risky activities, you will probably want to consider one of the business structures that provides personal limited liability protection, like a corporation or a limited liability company. How you plan to raise capital and what type of taxation you want for your business will also affect your business entity choice.
Businesses often change their structure as they grow. Many small businesses start out as a sole proprietorship or partnership and then change to a corporation or limited liability company as they grow. The choice you make when you start out can end up affecting what you do later so it's important to think through your decision early on. Be sure to consider the pros and cons of each type of business structure before you make your final decision.