Types of Business Structures
The five types of business structures are sole proprietorship, partnership, limited liability company, corporation, and cooperative.
Considerations When Selecting a Legal Structure
There are a variety of considerations that must be taken into account when selecting the appropriate legal structure for a new business. Choosing a legal structure for your business involves more than deciding which type of entity to register with the state; it also requires knowledge about tax obligations, liability protection, and compliance requirements.
Sole Proprietorship
A type of business entity that is owned and run by one individual – there is no legal distinction between the owner and the business. Sole Proprietorships are the most common form of legal structure for small businesses. Taxation: A sole Proprietorship has pass-through taxation. The business itself does not file a tax return.
Corporation
A corporation is a legal entity that is separate and distinct from its owners. Owners of a corporation are called shareholders and they elect a board of directors to oversee the corporation’s affairs.
Corporation vs. LLC Ownership
While both of these structures offer liability protection for their owners, there are some important differences between the two that should be considered before making a decision. One of the primary differences between a corporation and an LLC is their ownership structure. In contrast, LLCs are owned by members who have the flexibility to manage the company themselves or to appoint managers to do so.
Legal Structure Selection
Of all the choices you make when starting a business, one of the most important is the type of legal structure you select for your company.
Legal Structure Considerations
Each business structure has its advantages and drawbacks, and the decision depends on your business’s specific needs and long-term goals. Consulting with a professional or legal advisor can help you make an informed choice and set your venture up for success.
Best Legal Structure for Your Business
Where is your company headed, and which type of legal structure allows for the growth you envision? Turn to your business plan to review your goals and see which structure best aligns with those objectives. Your entity should support the possibility for growth and change, not hold it back from its potential.
Types of Business Structures Comparison
The four main types of business structures are sole proprietorship, partnership, corporation, and limited liability company (LLC).
Impact of Business Structure
Your business structure impacts liability protection, taxes, and more. Choosing the right business structure will ensure you are able to run your business the way you want and expand and grow in the future.
Business Ownership Structures
Understanding the characteristics of the four primary business ownership structures and how each impacts operations is critical to ensuring long-term viability and prosperity. When starting a business you need to choose the type of entity by which you will operate. This can be confusing if you aren’t familiar with the different types of ownership and the advantages or disadvantages of each.