Choosing the ideal legal structure for your business – Factors to consider

When you’re in the process of starting a new business, the legal structure that you choose for your business is definitely going to be one of the most vital decisions that you can ever take. While there are basically four kinds of business entities, each of them have their own advantages and disadvantages. Being a potential business owner, you have to ensure that the choice of structure will hugely have an impact on the way in which you run your business. This decision will have an effect on taxes and liability and your control over your company.

If you’re someone who doesn’t have a clear idea of the various legal structures that you can choose for your business, you’ve clicked on the right post. We are going to make a list of the most common business structures.

The 4 types of business structures

  1. Partnership business

This entity is owned by either 2 or more than 2 individuals and there are 2 partnerships, the general one and the one that’s limited where just one partner has full control over the operation and the other partner can partially contribute to the profit and also receive it.

  1. Sole proprietorship

This is one of the most common kinds of business entity and this is used by more than 75% of the businesses in the US, as per the SBA or the Small Business Administration. With this form of business entity, a single person will be liable for all the profits and debts of the business.

  1. Corporation

As per the law, a corporation is a business structure which is separate from the owners. It has got the own legal rights which are not dependent on the owners, the corporation can sue, it can be sued, it can own property and sell it off and sell ownership rights. You can form an S-Corp or a C-Corp or a B-Corp.

  1. Limited Liability Company (LLC)

A limited liability company is a hybrid structure which lets partners, owners and shareholders limit their personal obligations while benefitting from the flexibility and tax benefits of partnership. In an LLC, members are safeguarded from personal liability for business debts.

Factors to consider before choosing the ideal business entity

  • Liability: It is a corporation which has the minimum amount of liability since it is held as its own entity by law. The customers and creditors can easily sue the corporation but they can’t gain access to personal assets of shareholders and officers.
  • Taxes: The owner of an LLC will pay taxes just as it is done in a sole proprietor and the profits will be considered as personal income. If you wish to avoid double taxation in the future, an LLC can help you with that.
  • Complexity: With regards to complexity, there can be no structure that is simpler than sole proprietorship. Partnerships and LLCs have different reporting complexities.

So, now that you know the ways in which you can set up a business, don’t forget to hire registered agents who can accept lawsuits on your behalf and also act during your absence.


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