Startup Basics / Startup Life

The Five Different Legal Structure For Business Owners To Choose From

Deteremining your legal structure for your business is not an easy fet. As an entrepreneur for over a decade, I remember trying to piece all this information together, and it was slightly more challenging than I thought. In addition to that, legal jargon is not my forte. However, my best friend is my lawyer and helps me with all that fancy stuff now. Here is an overview of the five most common legal structures in the United States.

The most common legal structures in business are as followed:

  • Sole Proprietorships
  • Partnerships
  • Corporations
  • S Corporations
  • Limited Liability Company (LLC) 

Sole proprietorship or LLC are the two most common legal structures in business for the novice. They are widely talked about on social media. In addition that, they are the easiest for you to start.

Sole proprietorships are not separate business entities, and once you start your business, you are consider one. This means your business assets and liabilities are not separate from your personal assets and liabilities. 

Partnerships are for two or more individuals who want to go into business together. There are two common partnerships: limited partnerships (LP) and limited liability partnerships (LLP).

A corporation is a legal entity separate from its owners. Corporations can make a profit, be taxed, and can be held legally liable. Corporations offer the most robust protection to their owners from personal liability, but the cost to form a corporation is higher than other structures.

An S corporation, also known as S corp, is designed to avoid regular C corps’ double taxation drawback. S corps allow profits, and some losses, to be passed through directly to owners’ personal income without ever being subject to corporate tax rates.

An LLC allows you to take advantage of the benefits of both the corporation and partnership business structures. LLCs protect you from personal liability in most circumstances. LLC business structure is the most popular outside of sole proprietorship for small businesses, entrepreneurs, or creatives. 

Once you determine which legal structure is best for your business, you can go on your state website and fill out the necessary documentation. Remember having this legal entity is not the same as you trademarking your company name or doing copyright for products. I would recommend sitting down with a lawyer to discuss which one of the five business structures is best for your business. 

Photo by Copernico on Unsplash

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