What Are Legal Structures

Corporate structure refers to the legal structure of an organization that is recognized in a particular jurisdiction. An organization`s legal structure is a key determinant of the activities it can perform, such as raising capital, liability for the company`s obligations, as well as the amount of taxes the organization owes to tax authorities. The different business structures are explained in detail below: Choosing a legal entity for your business requires research and effort to ensure you comply with the law. You may want to hire a business lawyer to help you with the more difficult aspects of starting small businesses, such as preparing and filing documents and complying with local laws. Whether you`re dealing with a business liability issue or simply need advice on choosing a sole proprietorship, you may need to contact a small business lawyer. Most lawyers offer free one-time consultations. Companies are the most complex business structure. A corporation is a legal entity that is separate and independent of the persons who own or manage the company, namely the shareholders. A corporation has the ability to enter into contracts separate from those of shareholders, but it also has certain responsibilities such as paying taxes. Businesses are generally best suited for large, established businesses with multiple employees or when other factors apply (e.g., the Company sells a product or offers a service that could expose the Company to significant liability). Ownership is determined by the issuance of shares. You are starting a business and want to limit your personal liability for the company`s debts as well as the taxes you have to pay.

This is a common goal for many new business owners. However, a good understanding of how companies` legal structures work is not that common. So, what are the legal structures and what type(s) should you consider? C companies, S companies, limited liability companies, sole proprietorships, and partnerships are among the most common options for corporate legal structures. There are differences and similarities that can significantly affect the future of your business. Not structuring your business in the most appropriate way (given your goals) can lead to many poor results, including: Different legal structures have different advantages and disadvantages. In most cases, the criteria you evaluate to choose the right format are: Sole proprietorship is one of the most common legal structures for small businesses. Many popular businesses started as sole proprietorships and eventually grew into multi-million dollar businesses. Some examples: Before making a decision on the type of legal structure, entrepreneurs should first consider their needs and objectives and understand the characteristics of each business structure. The four main forms of business structures in the United States include sole proprietorship, partnership, limited liability company, and corporation.

It is important to remember that a C corporation is considered a separate legal entity from its owners. This is the source of its relative advantages and disadvantages, especially in terms of taxes and liability. Similar to a sole proprietorship, but with multiple owners (a sole proprietorship cannot have more than one owner). Like a sole proprietorship, a partnership is not a separate legal entity from its owners. The corporation is not required to file income tax forms separate from the owner because the corporation does not exist as a separate legal entity from its owner. The owner must file Form 1040, and the form must include Schedules C and SE for self-employment tax. Key Finding: The five types of business structures are sole proprietorships, partnerships, limited liability companies, corporations and cooperatives. Choosing the right structure largely depends on your type of business.

As your business grows, you can modify structures to meet its needs. When you start a business, you need to decide what form of business unit you want to create. Your business form determines the tax return form you must submit. The most common forms of business are sole proprietorships, partnerships, corporations and S companies. A limited liability company (LLC) is a business structure authorized by state laws. Legal and tax considerations are taken into account when choosing a business structure. The law treats a corporation as a separate entity from its owners. He has his own legal rights, regardless of who owns it – he can sue, be sued, own and sell property, and sell property rights in the form of shares.

Business filing fees vary by state and fee category. For example, in New York, S Corporation and C Corporation`s fee is $130, while the non-profit fee is $75. One of the first decisions you need to make when starting a business is determining the right legal structure for your business. A type of form of corporation that is taxed as a sole proprietorship. Its constitution is subject to certain legal criteria, such as a maximum number of shareholders. Think about what can happen when you start your business. Simply put, there are two scenarios. One scenario is that your business will be successful and profitable. The other scenario is that your business fails and loses money.

If you set up your business structure correctly, you`ll be better off in both scenarios. The other side of the coin is also true; If you don`t set up your business structure correctly, you`ll be worse off in both scenarios. A legal structure is an organizational framework for the operation of a business unit. Also known as a business structure, business form, or business ownership structure, the right legal structure depends on the size and nature of your business and business goals. That`s right – it`s not about whether you`re going to pay taxes, but how often you`re going to pay taxes. Some structures are called flow-through entities, and income and losses are literally passed from the corporation to the individual for tax purposes. Other structures form a separate tax entity that is taxed by itself. Then, when the income is distributed, the owner is taxed again on that business income.

The structures discussed here apply only to for-profit businesses. If you`ve done some research and still aren`t sure which business structure is right for you, Friedman recommends consulting a business law specialist.