How To Choose The Best Legal Structure For Your Business

Published on: 15 April 2022 Last Updated on: 05 May 2022

Starting a business can be exciting, scary, and – let’s be honest – confusing!

You don’t need an MBA or any other business degree to start a successful business. But, there are other important things that you need to make right from the beginning.

While there are many things that need to be done correctly from the start of the business, there is one thing where you cannot make a mistake Choosing The right business structure.

Your business structure is important in many ways. It decides how your business will showcase in front of others, what power you will have over your business, and most importantly, what type of taxation it will fall under.

Seeing how the current entrepreneurs are so hung up on sole proprietorship that they do not see the benefits of other business structures.

Today, we have come to take you on a journey and make you see the different business structures and what each offers to a business.

What Is A Legal Structure Of A Business?

Every new business requires the formation of a business entity that can be considered its identity in the market. This is where the concept of a legal structure comes in.

A legal structure, also known as a business ownership structure, determines the flow of power within the business, the type of income tax you need to file, and highlights the risk to which your business is exposed.

The most common legal business structures are as follows:

Sole Proprietorships.
Partnership.
Corporation.
Cooperative.
Limited Liability Company (LLC).

Types Of Business Structure

While there are many legal business structures, we have picked the most used currency in the world. This Legal Structure covers almost every aspect of legal business structure.

1. Sole Proprietorships

This is the simplest form of legal business structure. In this type of business structure, one individual is solely responsible for the business profits, debts, and liabilities.

This business structure works great for small to medium-scale businesses. This entity does not offer separation or protection of any personal and professional assets. While this is great for small businesses, it might be difficult to scale up.

2. Partnership

As the name suggests, this type of business structure is owned by two or more individuals. The legal partnership structure can be further divided into two entities: General Partnership and Limited Partnership.

A general partnership is where all the shares are equally divided among all the partners.
In a limited partnership, one individual has control over all the business operations. While others are just contributors and shareholders for the profit.

3. Corporation

When a business is considered a corporation, it becomes a separate entity from its owner by law. It is considered a separate entity that enjoys legal rights just like any other person.

For instance:

It can sue others.
It can be used.
Buy and sell a property.
It even has the right to sell the right of its ownership.

4. Limited Liability Company (LLC)

A Limited Liability is a hybrid structure that allows owners, partners, and shareholders to limit their liability while enjoying the tax and flexibility of a partnership business model.

Under the umbrella of the LLC, members of the business are shielded from any personal liability related to the business as long as they have a written LLC Operating agreement contract.

However, to do that, the business needs to have the best business bank accounts with all the necessary features.

5. Cooperative

A cooperative business legal structure follows the concept of serving the same people who are working for the business. All the members are responsible for making business decisions, and whatever the profit business samples, it is shared among the members.

A cooperative business structure offers the following advantages.

Low taxes.
Increased funding.
Better discounts and services.

Factors To Weigh Before Choosing A legal Business Structure

While an individual can choose any business structure they like, there are a few considerations you need to look into.

1. Complex Procedure

Businesses with fewer people don’t need complex procedures to rule their business operations. Instead, they can just follow a simple business format.

However, if your business has many employees and offers different types of services, you must select a business structure that can support all your business requirements.

The best way to understand what kind of legal business structure you need is essential that you understand the goals and a business structure that help you achieve the least complexity.

2. Continuity Of Existence

You are not starting a business with a lifespan of only a decade. That means, while you are planning for your business, you must plan for its continuity. Hence, it is important that you see how a business is concluding.

If you are thinking of securing your business for future financial security, you must also look into the right business structure to support your needs.

3. Control

Business is all about control. If you cannot control how your business is operated, you will never be able to calculate the ROI at the end of the day. Hence, it is essential to decide how much control each individual requires to operate the business.

For instance, if someone wants to have more control over their business, sole proprietorship might be a more suitable business structure.

4. Liability

When running a business, you need to ensure that your personal liabilities are not tied down with your business. In that case, what will happen is that your personal liabilities will be used to cope with business losses.

Hence, to separate your business from your personal liabilities, choose a legal business structure that protects your personal assets.

Conclusion

Choosing a business structure is dependent on what you want to achieve from your business. Depending on what you want from your business, you can go with any legal business structure.

While you are free to decide for yourself which business structure you want to go with, it is a good idea that you take help from a business lawyer.

A business lawyer can help you understand the differences and benefits more detailedly. They will even help you with all the paperwork needed to establish your business as a legal entity.

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Arnab

Arnab is a professional blogger, having an enormous interest in writing blogs and other jones of calligraphies. In terms of his professional commitments, He carries out sharing sentient blogs.

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How To Choose The Best Legal Structure For Your Business

What Is A Legal Structure Of A Business?