Legal Business Structures

When beginning a business, you must decide what form of business entity to establish. Your form of business determines the amount of regulatory paperwork you have to file, your personal liability regarding investments into your business, and the taxes you have to pay. You may need to contact several federal agencies as well as your state business entity registration office.

Of all the decisions you make when starting a business, probably the most important one relating to taxes is the type of legal structure you select for your company. Not only will this decision have an impact on how much you pay in taxes, but it will affect the amount of paperwork your business is required to do, the personal liability you face and your ability to raise money.

One of the first decisions that you will have to make as a business owner is how the company should be structured. This decision will have long-term implications, so consult with an accountant and attorney to help you select the form of ownership that is right for you.

Part of keeping your home-based business legal involves choosing the legal structure for it: sole proprietorship, partnership, or corporation. Aside from being necessary for government reporting and tax purposes, this can enable your business to operate more efficiently. Since each legal form has its own unique characteristics, your goal is to choose the form that works best for you.

University of Wisconsin Center for Cooperatives comparison table of the following business structures: Partnerships, Limited Liaility Companies; S Corporations, C Corporations, and Cooperative Cooperations.

There are two professionals every business will need early on: an accountant and a lawyer. The reasons for hiring an accountant are pretty obvious--you need someone to help you set up your "chart of accounts," review your numbers periodically, and prepare all of your necessary federal, state and local tax returns. The reason for hiring a business attorney may not, however, be so apparent. A good business attorney will provide vital assistance in almost every aspect of your business, from basic zoning compliance and copyright and trademark advice to formal business incorporation and lawsuits and liability.

Starting a business in the United States involves various legal aspects such as a basic understanding of the federal and state legal systems, business immigration, corporate law, labor legislation and so on. This is not a section created by lawyers, but rather a high-level perspective on law and common basic sense about legal issues in the United States.

Sole proprietorships are the most common - and simplest - form of business organization. Sole proprietorships are owned by one person who is generally also responsible for the business's day-to-day operational responsibilities. Sole proprietors operate in many different capacities, including full and part-time businesses, individually run businesses or those with employees, and traditional, home-based, or online businesses in all different industries. Sole proprietors own all assets and profits of the business and also assume complete responsibility for business liabilities and debts.

A sole proprietorship is an unincorporated business organization that's owned and operated by an individual. Sole proprietors do not run their operations through separate legal entities (such as corporations). They can sell goods or services; they can also be self-employed freelancers, independent contractors (ICs) and consultants who provide their services to other businesses. There are over 17 million sole proprietorships in the United States, comprising well over 70% of all the nation's businesses. This isn't surprising since it's the easiest, fastest and least costly way of going into business.

When two or more people decide to join together to carry on a trade or business, their relationship is considered to be a partnership. In general, each partner contributes to all aspects of the business including money, property, and labor or skill. In return, each partner shares in the profits and losses of the business.

Entrepreneurs planning to form a business partnership should consider having a written partnership agreement, also known as the articles of partnership. Under the Uniform Partnership Act, a partnership agreement may be written, oral or implied. Although there is no legal requirement for a partnership to be formed by written agreement, business attorneys typically recommend that persons looking to form a business partnership have a formal written agreement.

In the commercial and legal parlance of most countries, a general partnership or simply a partnership, refers to an association of persons or an unincorporated company with the following major features: * Created by agreement, proof of existence and estoppel. * Formed by two or more persons * The owners are all personally liable for any legal actions and debts the company may face.

A partnership is a for-profit business association of two or more persons. Because the business component is defined broadly by state laws and because "persons" can include individuals, groups of individuals, companies, and corporations, partnerships are highly adaptable in form and vary in complexity. Each partner shares directly in the organization's profits and shares control of the business operation. The consequence of this profit sharing is that partners are jointly and independently liable for the partnership's debts.

A corporation is an independent legal entity owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts incurred by the business. A corporation is an independent legal entity. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts incurred by the business.

When starting a business or changing your business structure, one of the most common options small business owners evaluate is whether to form an S corporation (S corp) or C corporation (C corp). These are the two most common ways to incorporate online, and the choice really depends on your business goals.

People often think that S corporations are complicated. That's not really true in most cases, however. S corporations are actually less complicated, in many ways, than partnerships and than limited liability companies treated as partnerships.

An S Corporation or S Corp is a special type of corporation created through an IRS tax election. An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation.

A C corporation is a legal entity that exists separately from its owners and is taxed as a separate entity. As a result, C corporations are subject to double taxation: the corporation pays income tax on its profits, but the shareholders must also report their dividends on their personal income-tax returns.

Forming your company into a Limited Liability Company has specific benefits, particularly if you want to protect your members' exposure to liability. An LLC protects its members from lawsuits and debts, and provides for "pass through" taxation with the flexibility of a sole-proprietorship or partnership in terms of management and operations.

Limited Liability Companies are a relatively new concept in business structures and taxpayers have many questions regarding how becoming an LLC affects their tax return. Since the federal government does not recognize an LLC as a classification for federal tax purposes, such entities must figure out how they should file their federal returns. Here are three of the most common questions about LLCs.

A limited liability company is a hybrid-type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. The "owners" of an LLC are referred to as "members." Depending on the state, the members can consist of a single individual (one owner), two or more individuals, corporations, other LLCs, and even other entities.

Related Articles * Understanding a 1031 Exchange * What IRS ID Do I Need for My Business? * Small Business Caught Betwixt and Between on Tax Overhaul The term "nonprofit" is loosely applied to organizations that are formed in order to benefit the public. Many of these organizations choose to formally become nonprofit corporations, formed under the laws of a particular state. Many of the issues and procedures involved in setting up a for-profit corporation also apply when setting up a nonprofit corporation.

If your passion is to inspire, make a difference and give back to the world, then starting a non-profit is an exciting entrepreneurial proposition. But before you start there are a few things to consider. Starting a non-profit organization (NPO) is similar to starting any kind of business - together with commitment you need a clear objective, a niche (i.e. an original, unclaimed idea) and a communicable business plan to present to your donors. You'll also need to understand how to structure your non-profit, what tax exemptions you may qualify for, as well as how you can obtain government grants.

A business organization that serves some public purpose and therefore enjoys special treatment under the law. Nonprofit corporations, contrary to their name, can make a profit but can't be designed primarily for profit-making.

The procedures and rules about starting a new nonprofit organization-even the words used to describe such organizations-vary greatly around the world. This page describes very generally the process in the United States.

Advantages of forming a corporation or Limited Liability Company (LLC).

A summary checklist in connection with the formation of a corporation.

Article with information about what it costs to incorporate.

Options for incorporating without an attorney.

Entrepreneur.com article about the ins and outs of forming a corporations.

eHow article describing the steps to incorporate any size company.

Instant download of new corporation checklist in pdf format.

Article about steps to take after you've decided to incorporate, such as deciding what type of coporation to form and where to incorporate.

A quick guide to choosing in which state your company will incorporate.

Article about your business staying compliant.

eHow article explaining how to draft corporate bylaws.

Article about bylaws.

An HG.org Article guiding start-up businesses when choosing the type of business structure they should form.