Legal Structure of Business Plan

Limited liability is attractive to entrepreneurs because it protects personal assets from debts or obligations of the company. Forming a co-operative is complex and requires you to choose a business name that indicates whether the co-operative is a corporation, such as registered (Inc.) or limited. Registration fees for a cooperation agreement vary by country. In New York, for example, the filing fee for a registered business is $125. The most common types of businesses include sole proprietorships, partnerships, limited liability companies, corporations and cooperatives. Here you will find more information about each type of legal structure. At the other end of the spectrum of business structure, you`ll find not-for-profit organizations. A connection between two or more people in profit-seeking businesses. Partnerships can be created with little formality, but since more than one person is involved, a partnership agreement should be established. A partnership agreement establishes the company`s terms by formalizing rules relating to profit and loss sharing, ownership shares, dissolution conditions, and management rights, among other things.

Want to know the other steps to start a business? Read our blog post „11 Steps to Starting a Business in Tennessee or Alabama.” Although the most common type of business is technically known as „C Corporation” or „C Corp”, there are other types of business structures that you need to be aware of. You need professional legal advice to make this decision, but the first step is to learn what the different structures are, depending on your situation, long-term goals, and preferences. „If you want to be your own boss and run a home-based business without a physical storefront, you can keep full control with a sole proprietorship,” said Deborah Sweeney, CEO of MyCorporation. „This company doesn`t offer segregation or protection of personal and professional assets, which could prove to be a problem later as your business grows and more and more aspects make you liable.” The simplest (and least amount of paperwork) of all legal business structures is sole proprietorship. To start a sole proprietorship, you need a good idea, a lot of determination, and an infinite reserve of energy for the hard work ahead. However, the only documents you`ll need are those required to submit a fictitious name (if you decide not to use your own) and the licenses you`ll need to start operating. You don`t have to take formal steps to set up a sole proprietorship. Therefore, there is no need to hire professionals to submit the necessary government documents to help you get started. You do everything yourself! Countries choose different ways of organizing the legal structure of business life. Therefore, you should contact your local authority to find out how your country organizes the trading company.

Taxation: A sole proprietorship has pass-through taxation. The company itself does not file a tax return. Instead, the income (or loss) is transmitted and reported on the owner`s personal tax return using a Schedule C (Form 1040). A limited partner only risks his investment, but in return must allow one or more general partners to control the company. Indeed, if the limited partner becomes involved in the affairs of the partnership, he may lose his protected status as a limited partner. The general partners of a limited partnership are fully liable for the debts of the partnership. Most lawyers would agree (but check this with your own lawyer who is familiar with your unique business) that C Corporation is the structure that offers the greatest personal liability protection to owners and offers the best non-tax benefits to owners. Many companies that have ambitions to raise large investment capital and eventually go public are considering C Corporation. It is the simplest form of business unit. In a sole proprietorship, a person is responsible for all profits and debts of a business. When it comes to start-up and operational complexity, nothing is easier than being a sole proprietorship. All you need to do is register your name, start doing business, report the profits, and pay taxes on it as personal income.

However, it can be difficult to obtain external financing. Partnerships, on the other hand, require a signed agreement to define roles and percentages of profits. Companies and LLCs have various reporting obligations to state and federal governments. A sole proprietorship is also the easiest business to start; No official registration action is required on your part. Disadvantages of partnerships: • Partners are personally liable for the debts and liabilities of the business. • May lead to management and supervision issues without a partnership agreement. I`ll describe how to get a DBA in this article here, as well as other details on registering your business name, so check that before you start. In most parts of the world, three main types of predominant legal forms are used to manage small business organizations. These business forms are as follows: Although small businesses may be LLCs, some large companies choose this legal structure. An example of LLC is Anheuser-Busch Companies, one of the leading companies in the U.S. brewing industry. Anheuser-Busch, headquartered in St.

Louis, Missouri, is a wholly owned subsidiary of Anheuser-Busch InBev, a multinational brewery based in Leuven, Belgium. This type of business structure is considered the most formalized and complex form of business organization. It`s more expensive, more difficult, and requires more paperwork. Tim Berry, founder of Palo Alto Software (maker of Bplans), reminds small business owners and startup founders that choosing a business unit or structure is serious. He says: Joint venture: If you plan to work together on a specific project, a joint venture might be for you. Joint ventures operate as a partnership, but for a limited period of time, such as the completion of a one-time project. B Corporation: Does your company have a dedicated social mission, a good cause embedded in its foundation, that you want to continue to promote as your business grows? If so, you should consider becoming a B Company, which stands for „Benefit Corporation”. However, the name is somewhat misleading; A B Corp is not a completely different structure from a regular C Corporation. It is simply a C Corp that has been reviewed and approved for B Corp status.

Some states give B-Corps tax breaks, and it`s a great way to support a cause. They are very different from previous corporate structures, for an obvious reason: they are a „non-profit” corporate structure, meaning that they do not exist to generate income for shareholders, but to channel the company`s income towards a mission, cause or social goal. Partnerships are actually collections of sole proprietors, so there are legal issues related to personal liability. There are very few restrictions on starting a business with another person (or people) in partnership and several clear benefits. By pooling your resources, you may have more capital. You will bring several skills to the company, and if you get sick, the company can always continue. The biggest downside is when your partner makes a business mistake. This could be because your partner signs a disastrous contract without your knowledge or consent. Each member of the partnership must bear the consequences equally. In these circumstances, your personal assets could be used to pay creditors – even if the mistake wasn`t your fault. Shareholders, a more complex legal structure and more complex tax requirements are hallmarks of a corporation. Unlike other types of businesses, co-operatives are owned by the people they serve.

Notable examples of co-ops include: Deciding what type of business structure is right for your business affects how much you pay in taxes, the risk or liability of your personal assets (your home, personal savings), and even your ability to raise money from angel investors or venture capital firms. In many ways, the corporate structure of the sole proprietorship is very similar. For example, there is unlimited liability for partners and a limited life of the company. However, where it differs is that you can share the work, financial pressure, decision-making, and anything else that comes with the company with a trusted colleague. If you have chosen your partners well, you can expect synergy effects. For more information, see the Select an Enterprise Structure in Small Business Administration Web page. 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. By including information about common types of business structures here on Bplans, I`m not suggesting that you should do it yourself. If your business is going through a difficult time, does the idea of being held personally responsible for all losses seem intimidating to you? If you plan to be self-employed and operate your small business yourself, a sole proprietorship may be for you.