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HomeTipsSteps To Choose The Best Legal Structure For Your Business

Steps To Choose The Best Legal Structure For Your Business

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What is a business legal structure?

In legal terms, a business structure is a business entity. The business legal structure on the federal level is in determining the tax burden. There may be liability ramifications on a state level.

Sole proprietorship

The simplest business entity is a sole proprietorship. In a sole proprietorship, only one person is responsible for the debts and profits of a company. Any person willing to be a boss runs a business without a storefront. He can do it from home because a sole proprietorship allows staying in complete control.

A sole proprietor does not offer the protection or separation of professional and personal assets. It may prove to become an issue as the business grows and the aspects are your liability.

The costs of proprietorship vary by market. The initial expenses include federal and state fees, business equipment leases, taxes, banking fees, and professional and office space as your business contracts.  Some of these businesses are tutors, freelance writers, babysitters, and cleaning service providers.

A sole proprietorship business structure benefits include:

  • Low cost, easy setup, easy exit, and tax deduction.

The sole proprietorship is the most small business common legal structure. Many prominent companies started as sole proprietorships and then grew into multimillion-dollar businesses such as eBay, Wal-Mart, JCPenney, and more.

  • eBay
  • JCPenney
  • Walmart
  • Marriott Hotels

Limited liability Company

Limited liability company legal structure

An (LLC) limited liability company denotes a hybrid structure allowing, partners, owners, or shareholders to restrict their liabilities. They can enjoy taxes and benefits. The members under an LLC are safe from the business debts from personal liability. If evidence of wrong manner or negligence in performing the business is not available, they are not liable.

Limited liability companies provide the liability protection to business owners that corporations enjoy as they earn and pass it to the owners on their tax returns as income. LLCs can have more or one member, and the losses and profits do not divide among members. Small businesses can be LLCs, and a few large businesses opt for this legal structure. Some LLC well-known examples are:

1. Nike

2. Sony

3. eBay

Business structure

This business structure type is the most complex and formalized form of business organization. It is more difficult, costlier, and requires more paperwork.

A separate legal entity is a corporation that is with state and federal statutes in accordance. The business activities dictate stating the limitations and powers of the business. The corporations doing business in more states should comply with the Federal laws, state laws and interstate commerce.

The advantages of a corporation are:

  • Liability is restricted to the owner amount for paying a share of stock. In a corporation, stockholders are not liable for claims towards the corporation and are liable only for personal investment.
  • The business life stays the same and has no effect by any transfer of shares, or death of any one of the owners. The corporation will continue the business, and the customers deal with this business owing to its continuity.
  • Raising capital is easy for many investors in large amounts
  • Centralized control is safe and secure, while authority delegates and owners give authority to the hired managers.

A business structure relies on four main factors, and an entrepreneur decides on the organization form-fitting their business to the best. The factors are ease of transfer, personal liability limitation, taxes, new owner’s admission, and the expectation of investors.

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