Choosing the most appropriate legal structure for your business – Few tips for beginners

October 9th, 2017 | by admin
Choosing the most appropriate legal structure for your business – Few tips for beginners

One of the most vital decisions that an entrepreneur needs to take during the process of setting up a business is the legal structure to choose for his business. If you are a novice, you should be aware of the fact that there are 4 different entities for business and each of them has its own benefits and pitfalls. You need to remember that the selection of structure can have a huge impact on the way you operate your business and it will have an impact on taxes and liability and controlling the company.

It is not something that can be taken lightly or that can be taken without proper counseling or without seeking help from experts. There are many horror stories that you might have heard about people who later on wished they had taken enough time to seek expert advice on the legal structure they should choose for their business. Here are few tips on how to choose the best legal business structure.

Business entities – What are the types?

  • Sole Proprietorship: This is probably the simplest form when it comes to choosing a business entity and presently in the United States of America; more than 75% of businesses use this form, as per reports from the SBA or Small Business Administration. With this type, a single person is responsible for all the debts and profits of the company.
  • Limited Liability Company: A limited liability company is one of those hybrid structures which allow partners, owners or shareholders to control their personal assets while reaping the benefits of partnership. Under an LLC, the members are safeguarded from personal liability for commercial debts. However, if it gets proved that the owners have acted in an unethical and illegal manner, they would be liable. You have to keep in mind all this if you want to form an LLC.
  • Partnership: This is that legal business structure which is owned by 2 or more people. There are 2 kinds, general partnerships and limited partnerships. In the former, all profits are shared equally among the partners and in the latter, only one exercises control on the business operations and the other just contributes or obtains a portion of the profit. The structure actually depends on the liability and funding structure of the entity.
  • Corporation: Legally, corporation is that entity which is entirely separate from its owners. It possesses the legal rights separately from its owners. There various types of corporations, including S corporations, C corporations and B corporations. There is a very common misconception that all sorts of corporations are similar to each other but it is not so.

One more thing that you require knowing is that the structures that have been discussed above are only applicable for for-profit businesses. So, no matter you’re a novice, you should do little bit of research before deciding on the type of legal structure your business should be. You may even check the website of SBA to know more on this.

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