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How to Choose the Best Legal Structure for Your Business

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Table of Contents

Your business’s legal structure has many ramifications. It can determine how much liability your company faces during lawsuits. It can put up a barrier between your personal and business taxes – or ensure this barrier doesn’t exist. It can also determine how often your board of directors must file paperwork – or if you even need a board. [Related article: What to Do if Your Business Gets Sued ]

We’ll explore business legal structures and how to choose the right structure for your organization. 

What is a business legal structure?

A business legal structure, also known as a business entity, is a government classification that regulates certain aspects of your business. On a federal level, your business legal structure determines your tax burden. On a state level, it can have liability ramifications.

Why is a business legal structure important?

Choosing the right business structure from the start is among the most crucial decisions you can make. Here are some factors to consider:

• Taxes: Sole proprietors, partnership owners and S corporation owners categorize their business income as personal income. C corporation income is business income separate from an owner’s personal income. Given the different tax rates for business and personal incomes, your structure choice can significantly impact your tax burden.
• Liability: Limited liability company (LLC) structures can protect your personal assets in the event of a lawsuit. That said, the federal government does not recognize LLC structures; they exist only on a state level. C corporations are a federal business structure that includes the liability protection of LLCs.
• Paperwork: Each business legal structure has unique tax forms. Additionally, if you structure your company as a corporation, you’ll need to submit articles of incorporation and regularly file certain government reports. If you start a business partnership and do business under a fictitious name, you’ll need to file special paperwork for that as well.
• Hierarchy: Corporations must have a board of directors. In certain states, this board must meet a certain number of times per year. Corporate hierarchies also prevent business closure if an owner transfers shares or exits the company, or when a founder dies . Other structures lack this closure protection.
• Registration: A business legal structure is also a prerequisite for registering your business in your state. You can’t apply for an employer identification number (EIN) or all your necessary licenses and permits without a business structure.
• Fundraising: Your structure can also block you from raising funds in certain ways. For example, sole proprietorships generally can’t offer stocks. That right is primarily reserved for corporations.
• Potential consequences for choosing the wrong structure: Your initial choice of business structure is crucial, although you can change your business structure in the future. However, changing your business structure can be a disorganized, confusing process that can lead to tax consequences and the unintended dissolution of your business. 

Types of business structures

The most common business entity types are sole proprietorships, partnerships, limited liability companies, corporations and cooperatives. Here’s more about each type of legal structure.

Sole proprietorship

A sole proprietorship is the simplest business entity. When you set up a sole proprietorship , one person is responsible for all a company’s profits and debts.

“If you want to be your own boss and run a business from home without a physical storefront, a sole proprietorship allows you to be in complete control,” said Deborah Sweeney, vice president and general manager of business acquisitions at Deluxe Corp. “This entity does not offer the separation or protection of personal and professional assets, which could prove to become an issue later on as your business grows and more aspects hold you liable.”

Proprietorship costs vary by market. Generally, early expenses will include state and federal fees, taxes, business equipment leases , office space, banking fees, and any professional services your business contracts. Some examples of these businesses are freelance writers, tutors, bookkeepers , cleaning service providers and babysitters.

A sole proprietorship business structure has several advantages.

• Easy setup: A sole proprietorship is the simplest legal structure to set up. If you – and only you – own your business, this might be the best structure. There is very little paperwork since you have no partners or executive boards.
• Low cost: Costs vary by state, but generally, license fees and business taxes are the only fees associated with a proprietorship.
• Tax deduction: Since you and your business are a single entity, you may be eligible for specific business sole proprietor tax deductions , such as a health insurance deduction.
• Easy exit: Forming a proprietorship is easy, and so is ending one. As a single owner, you can dissolve your business at any time with no formal paperwork required. For example, if you start a day care center and wish to fold the business, refrain from operating the day care and advertising your services.

The sole proprietorship is also one of the most common small business legal structures. Many famous companies started as sole proprietorships and eventually grew into multimillion-dollar businesses. These are a few examples:

• Marriott Hotels

Partnership 

A partnership is owned by two or more individuals. There are two types: a general partnership, where all is shared equally, and a limited partnership, where only one partner has control of operations and the other person (or persons) contributes to and receives part of the profits. Partnerships can operate as sole proprietorships, where there’s no separation between the partners and the business, or limited liability partnerships (LLPs), depending on the entity’s funding and liability structure.

“This entity is ideal for anyone who wants to go into business with a family member, friend or business partner – like running a restaurant or agency together,” Sweeney said. “A partnership allows the partners to share profits and losses and make decisions together within the business structure. Remember that you will be held liable for the decisions made as well as those actions made by your business partner.”

General partnership costs vary, but this structure is more expensive than a sole proprietorship because an attorney should review your partnership agreement. The attorney’s experience and location can affect the cost. 

A business partnership agreement must be a win-win for both sides to succeed. Google is an excellent example of this. In 1995, co-founders Larry Page and Sergey Brin created a small search engine and turned it into the leading global search engine. The co-founders met at Stanford University while pursuing their doctorates and later left to develop a beta version of their search engine. Soon after, they raised $1 million in funding from investors, and Google began receiving thousands of visitors a day. Having a combined ownership of 11.4% of Google provides them with a total net worth of nearly $226.4 billion.

Business partnerships have many advantages. 

• Easy formation: As with a sole proprietorship, there is little paperwork to file for a business partnership. If your state requires you to operate under a fictitious name ( “doing business as,” or DBA ), you’ll need to file a Certificate of Conducting Business as Partners and draft an Articles of Partnership agreement, both of which have additional fees. You’ll usually need a business license as well.
• Growth potential: You’re more likely to obtain a business loan with more than one owner. Bankers can consider two credit histories rather than one, which can be helpful if you have a less-than-stellar credit score.
• Special taxation: General partnerships must file federal tax Form 1065 and state returns, but they do not usually pay income tax. Both partners report their shared income or loss on their individual income tax returns. For example, if you opened a bakery with a friend and structured the business as a general partnership, you and your friend are co-owners. Each owner brings a certain level of experience and working capital to the business, affecting each partner’s business share and contribution. If you brought the most seed capital for the business, you and your partner may agree that you’ll retain a higher share percentage, making you the majority owner.

Partnerships are one of the most common business structures. These are some examples of successful partnerships:

• Warner Bros.
• Hewlett-Packard
• Ben & Jerry’s

Limited liability company 

A limited liability company (LLC) is a hybrid structure that allows owners, partners or shareholders to limit their personal liabilities while enjoying a partnership’s tax and flexibility benefits. Under an LLC, members are shielded from personal liability for the business’s debts if it can’t be proven that they acted in a negligent or wrongful manner that results in injury to another in carrying out the activities of the business.

“Limited liability companies were created to provide business owners with the liability protection that corporations enjoy while allowing earnings and losses to pass through to the owners as income on their personal tax returns,” said Brian Cairns, CEO of ProStrategix Consulting. “LLCs can have one or more members, and profits and losses do not have to be divided equally among members.”

According to Wolters Kluwer , the cost of forming an LLC comprises the state filing fee and can vary depending on your state. For example, if you file an LLC in New York, you must pay a $200 filing fee, a $9 biennial fee, and file a biennial statement with the New York Department of State .

Although small businesses can be LLCs, some large businesses choose this legal structure. The structure is typical among accounting, tax, and law firms, but other types of companies also file as LLCs. One example of an LLC is Anheuser-Busch, one of the leaders in the U.S. beer industry. Headquartered in St. Louis, Anheuser-Busch is a wholly owned subsidiary of Anheuser-Busch InBev, a multinational brewing company based in Leuven, Belgium.

Here some other well-known examples of LLCs:

• Hertz Rent-a-Car

Corporation 

The law regards a corporation as separate from its owners, with legal rights independent of its owners. It can sue, be sued, own and sell property, and sell the rights of ownership in the form of stocks. Corporation filing fees vary by state and fee category. 

There are several types of corporations, including C corporations , S corporations, B corporations, closed corporations, and nonprofit corporations.

• C corporations: C corporations, owned by shareholders, are taxed as separate entities. JPMorgan Chase & Co. is a multinational investment bank and financial services holding company listed as a C corporation. Since C corporations allow an unlimited number of investors, many larger companies – including Apple, Bank of America and Amazon – file for this tax status.
• B corporations: B corporations, otherwise known as benefit corporations, are for-profit entities committed to corporate social responsibility and structured to positively impact society. For example, skincare and cosmetics company The Body Shop has proven its long-term commitment to supporting environmental and social movements, resulting in an awarded B corporation status. The Body Shop uses its presence to advocate for permanent change on issues like human trafficking, domestic violence, climate change, deforestation and animal testing in the cosmetic industry.
• Closed corporations: Closed corporations, typically run by a few shareholders, are not publicly traded and benefit from limited liability protection. Closed corporations, sometimes referred to as privately held companies, have more flexibility than publicly traded companies. For example, Hobby Lobby is a closed corporation – a privately held, family-owned business. Stocks associated with Hobby Lobby are not publicly traded; instead, the stocks have been allocated to family members.
• Open corporations: Open corporations are available for trade on a public market. Many well-known companies, including Microsoft and Ford Motor Co., are open corporations. Each corporation has taken ownership of the company and allows anyone to invest.
• Nonprofit corporations: Nonprofit corporations exist to help others in some way and are rewarded by tax exemption. Some examples of nonprofits are the Salvation Army, American Heart Association and American Red Cross. These organizations all focus on something other than turning a profit.

Corporations enjoy several advantages. 

• Limited liability: Stockholders are not personally liable for claims against your corporation; they are liable only for their personal investments.
• Continuity: Corporations are not affected by death or the transferring of shares by their owners. Your business continues to operate indefinitely, which investors, creditors and consumers prefer.
• Capital: It’s much easier to raise large amounts of capital from multiple investors when your business is incorporated.

This structure is ideal for businesses that are further along in their growth, rather than a startup based in a living room. For example, if you’ve started a shoe company and have already named your business, appointed directors and raised capital through shareholders, the next step is to become incorporated. You’re essentially conducting business at a riskier, yet more lucrative, rate. Additionally, your business could file as an S corporation for the tax benefits. Once your business grows to a certain level, it’s likely in your best interest to incorporate it.

These are some popular examples of corporations:

• General Motors
• Exxon Mobil Corp.
• Domino’s Pizza
• JPMorgan Chase

Learn more about how to become a corporation .

Cooperative 

A cooperative (co-op) is owned by the same people it serves. Its offerings benefit the company’s members, also called user-owners, who vote on the organization’s mission and direction and share profits.

Cooperatives offer a couple main advantages.

• Increased funding: Cooperatives may be eligible for federal grants to help them get started.
• Discounts and better service: Cooperatives can leverage their business size, thus obtaining discounts on products and services for their members.

Forming a cooperative is complex and requires you to choose a business name that indicates whether the co-op is a corporation (e.g., Inc. or Ltd.). The filing fee associated with a co-op agreement varies by state. 

An example of a co-op is CHS Inc., a Fortune 100 business owned by U.S. agricultural cooperatives. As the nation’s leading agribusiness cooperative, CHS reported a net income of $422.4 million for fiscal year 2020. These are some other notable examples of co-ops:

• Land O’Lakes
• Navy Federal Credit Union
• Ace Hardware

Factors to consider before choosing a business structure

For new businesses that could fall into two or more of these categories, it’s not always easy to decide which structure to choose. Consider your startup’s financial needs, risk and ability to grow. It can be challenging to switch your legal structure after registering your business, so give it careful analysis in the early stages of forming your business. 

Here are some crucial factors to consider as you choose your business’s legal structure. You should also consult a CPA for advice.

Flexibility 

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. [Learn how to write a business plan with this template .]

When it comes to startup and operational complexity, nothing is more straightforward than a sole proprietorship. Register your name, start doing business, report the profits and pay taxes on it as personal income. However, it can be difficult to procure outside funding. Partnerships, on the other hand, require a signed agreement to define the roles and percentages of profits. Corporations and LLCs have various reporting requirements with state governments and the federal government.

A corporation carries the least amount of personal liability since the law holds that it is its own entity. This means creditors and customers can sue the corporation, but they can’t gain access to any personal assets of the officers or shareholders. An LLC offers the same protection but with the tax benefits of a sole proprietorship. Partnerships share the liability between the partners as defined by their partnership agreement.

An owner of an LLC pays taxes just as a sole proprietor does: All profit is considered personal income and taxed accordingly at the end of the year.

“As a small business owner, you want to avoid double taxation in the early stages,” said Jennifer Friedman, principal at Rivetr. “The LLC structure prevents that and makes sure you’re not taxed as a company, but as an individual.”

Individuals in a partnership also claim their share of the profits as personal income. Your accountant may suggest quarterly or biannual advance payments to minimize the effect on your return. 

A corporation files its own tax returns each year, paying taxes on profits after expenses, including payroll. If you pay yourself from the corporation, you will pay personal taxes, such as those for Social Security and Medicare, on your personal return. 

If you want sole or primary control of the business and its activities, a sole proprietorship or an LLC might be the best choice. You can negotiate such control in a partnership agreement as well.

A corporation is constructed to have a board of directors that makes the major decisions that guide the company. A single person can control a corporation, especially at its inception, but as it grows, so does the need to operate it as a board-directed entity. Even for a small corporation, the rules intended for larger organizations – such as keeping notes of every major decision that affects the company – still apply.

Capital investment

If you need to obtain outside funding from an investor, venture capitalist or bank, you may be better off establishing a corporation. Corporations have an easier time obtaining outside funding than sole proprietorships.

Corporations can sell shares of stock and secure additional funding for growth, while sole proprietors can obtain funds only through their personal accounts, using their personal credit or taking on partners. An LLC can face similar struggles, although, as its own entity, it’s not always necessary for the owner to use their personal credit or assets.

Licenses, permits and regulations

In addition to legally registering your business entity, you may need specific licenses and permits to operate. Depending on the type of business and its activities, it may need to be licensed at the local, state and federal levels.

“States have different requirements for different business structures,” Friedman said. “Depending on where you set up, there could be different requirements at the municipal level as well. As you choose your structure, understand the state and industry you’re in. It’s not ‘one size fits all,’ and businesses may not be aware of what’s applicable to them.”

The structures discussed here apply only to for-profit businesses. If you’ve done your research and you’re still unsure which business structure is right for you, Friedman advises speaking with a specialist in business law.

Max Freedman and Matt D’Angelo contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.

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Types of Business Structures Explained

13 min. read

Updated January 5, 2024

The choice you make about what type of business structure is appropriate for your company will affect how much you pay in taxes, the level of risk or liability to your personal assets (your house, your savings), and even your ability to raise money from angel investors or venture capitalists.

So, the structure you choose is significant.

This guide will explain the basics of common business structures, but we can’t tell you exactly which structure you should choose—if you need that kind of advice, you should consult a lawyer or an accountant.

• Sole proprietorship

The simplest business structure is the sole proprietorship. If you don’t create a separate legal entity, your business is a sole proprietorship. 

The main advantage of the sole proprietorship is that it’s relatively simple and inexpensive. The disadvantage is that it doesn’t create a legal separation between you and your personal assets and business assets. If you’re sued or your business folds—your personal assets are fair game for creditors and in terms of legal liability.

Who is a sole proprietorship for?

A sole proprietorship is ideal for self-employed individuals like personal trainers offering individual coaching or artists selling unique items on platforms like Etsy.

Key considerations

• Cost-effective setup: The primary expense is usually the DBA (“doing business as”) registration. Some states may require public notice, like a newspaper ad. Generally, the total cost is below $100.
• Simplified taxation: Sole proprietorships are “pass-through” tax entities. Profits and losses are reported directly on the owner’s taxes, necessitating only a few additional tax forms if you’re the sole worker.
• Hiring employees is possible: Being a “sole” proprietor doesn’t restrict hiring. If you employ others, tax processes become slightly more intricate.
• Limited ways to raise funding: You can’t sell company stock, limiting fundraising avenues.
• Potential loan difficulties: Banks might hesitate to grant loans to sole proprietorships due to perceived credibility issues.
• Full personal liability: If the business faces debt or legal issues, your personal assets, including your home, car, and savings, are vulnerable.

Dig deeper:

Should you register as a sole proprietorship?

Explore the pros and cons of incorporating as a sole proprietorship.

How sole proprietorships are taxed

Understand how registering as a sole proprietor impacts your taxes.

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• Partnerships

Still a relatively simple business structure, a partnership involves two or more individuals sharing ownership of their new business. They’ll contribute to the business in some way and share in profits and losses.

Partnerships are harder to describe because they change so much. State laws govern them, but the Uniform Partnership Act has become the law in most states. That act, however, mainly sets the specific partnership agreement as the real legal core of the partnership so that the legal details can vary widely.

Usually, the income or loss from partnerships passes through to the partners without any partnership tax. The agreements can define different levels of risk, which is why you’ll read about some partnerships with general and limited partners, with different levels of risk for each. Your partnership agreement should clearly define what happens if a partner withdraws, buy and sell arrangements for partners and liquidation arrangements if necessary.

What are the types of partnerships?

• General partnership: Assumes equal involvement of all parties in profits, liabilities, and duties. Any intentional imbalance should be specified in the partnership agreement.
• Limited partnership: Suited for partners in an investor role with limited involvement in daily operations. This structure is more complex and less common.
• Joint venture: Designed for a single project or a limited duration, operating similarly to a general partnership.

Who is a partnership for?

A partnership is similar to an extended sole proprietorship and is ideal for two or more individuals wanting to start a business jointly. 

To make the partnership more effective, you and your partners should have skillsets, connections, or other unique benefits that complement each other. 

For example, a personal trainer and nutritionist building an online fitness program. One entrepreneur has experience building an exercise regiment with clients. The other understands how to create balanced meal and supplement recommendations. 

They have unique but complementary knowledge that, when combined, creates a more valuable product/service.

• Partnership agreement: While not mandatory, it’s advisable to draft a partnership agreement, ideally reviewed by legal counsel, to clarify roles and responsibilities, ownership, and what will happen if a partner wants to leave the partnership.
• Tax implications: Partnerships are “pass-through” entities, meaning profits and losses are directly passed to the partners. Refer to the IRS for partnership tax details.
• Additional costs: Since it’s a good idea to have a lawyer look over your partnership agreement, don’t forget to factor in this added expense.
• Trust in partnership: Ensure your partner is trustworthy, as partners share responsibility for business decisions and debts. A well-drafted partnership agreement can prevent future conflicts.

How to create a business partnership agreement

Even if you’re not in an official partnership, you should consider drafting a partnership agreement. Doing so will clearly define rights and responsibilities and help you amicably resolve any disputes.

How partnerships are taxed

Understand how registering as a partnership impacts your taxes.

Plan for changes with a buy-sell agreement

What will you do if you or your partner quits, sells their portion of the business, or passes away?

How to find the right business partner

A partnership is more than a legal structure. It’s a relationship between entrepreneurs who share a passion for an idea and bring unique skill sets. So, how do you find the right person to make your partnership thrive?…

Traits to look for in a business partner

What makes a good business partner? If you’re considering someone with the following traits, you likely have a good fit.

How many partners should you have?

What’s the ideal number of business partners? The right mix of people and skillsets can lead to tremendous business growth. But too many may lead to disaster.

What to do when your business partner is your life partner

Should your significant other be your business partner? Learn your legal options and how to find the right ownership fit for your business and relationship.

• Limited liability company

Should your business fall on hard times, does the idea of being held personally responsible for all losses sound intimidating?

It’s understandable—plenty of would-be entrepreneurs shudder at the thought of the bank seizing their personal assets should the business go south.

A limited liability corporation (or LLC) is, in some ways, the best of both worlds. It allows for the flexibility of a partnership or sole proprietorship but, as the name suggests, limits the liability of those involved, similar to a corporation. An LLC is usually a lot like an S corporation. It offers a combination of some limitations on legal liability and some favorable tax treatment for profits and transfer of assets.

Who is a limited liability corporation for?

An LLC is ideal for those wary of personal liability in business. If you possess significant personal assets or operate in a lawsuit-prone industry—an LLC safeguards your personal finances. 

• Complexity: While offering more protection, an LLC is harder to establish than a sole proprietorship or partnership.
• Tax benefits: LLCs maintain “pass-through” tax status, meaning you’re taxed only on your profit share, which is reported on personal taxes. 
• Single-member LLCs: Most states allow single-person LLCs, making it a potential alternative to sole proprietorships.

How to form a limited liability company

Interested in forming an LLC? Here are the steps you’ll need to take.

How to create an LLC operating agreement

Set the rules for how your LLC will operate, including the management structure, individual responsibilities, ownership percentage, and other important information.

LLC costs and fees explained

Make sure you’re aware of all the costs and fees associated with forming an LLC.

How LLCs are taxed

Understand how registering as an LLC impacts your taxes.

• Corporations

Shareholders, a more complex legal structure, and more intricate tax requirements are all characteristics of a corporation.

Corporations are either the standard C corporation, the small business S corporation, or the benefit corporation or B corp. The C corporation is the classic legal entity of the vast majority of successful companies in the United States.

Corporations can switch from C to S and back again, but not often. The IRS has strict rules for when and how those switches are made. You’ll almost always want to have your CPA, and in some cases, your attorney, guide you through the legal requirements for switching.

Who is a corporation for?

Corporations are best suited for larger, established businesses with multiple employees, plans for rapid scaling, or intentions to trade or attract significant external investments publicly. A corporation might not be the right choice if you’re a small business owner or work with a small team.

What are the types of corporations?

C corporation.

What we typically think of when we refer to corporations, where all shareholders combine funds and are then given stock in the newly formed business. 

A C corp is a separate tax entity, meaning your business can deduct taxes. It also means that earnings can be taxed twice, as they are concerning your business and your personal taxes if you take income as dividends. However, good tax planning can often minimize the impact of double taxation.

Most lawyers would agree (but verify this with your lawyer who is familiar with your unique business) that the C corporation is the structure that provides the best shielding from personal liability for owners, and provides the best non-tax benefits to owners. Many companies with ambitions of raising major investment capital and eventually going public consider the C corporation.

S corporation

An S corp is similar to a traditional C corporation, with one major difference: Profits and losses can be “passed through” to your personal tax return without being taxed separately first.

In practical terms, the owners can take their profits home without first paying the corporation’s separate tax on profits. In most states, an S corporation is owned by a limited number of private owners (25 is a common maximum), and only individuals (not corporations) can hold stock in S corporations.

To become an S corp, you must first set your business up as a corporation within your state and then request S corp status. The IRS instructions for Form 2553 (which you’ll need to file to become an S corp) can help you determine if you qualify.

B corporation

Does your company have a dedicated social mission, a good cause built into its foundation that you’d like to continue furthering as your company grows? If so, you might consider becoming a B corporation, which stands for “benefit corporation.” 

However, the name is a bit misleading; a B corp isn’t an entirely different structure than a regular C corporation. It’s a C corp vetted and approved for B corp status. Some states give tax breaks to B corps, and it’s a great way to stand behind a cause.

So, why would you choose a B corp over a nonprofit? The biggest difference is in ownership—with a nonprofit, no owners or shareholders exist. A B corp, which is still a type of corporation, still has shareholders who own the company. So, a B corp has a social mission but is still a for-profit company (as opposed to a nonprofit) with an end goal of returning profits to the shareholders.

• Liability: Corporations offer the most protection for personal assets.
• Capital raising: The ability to sell stock enhances investment potential.
• Taxation: Corporate taxes are separate (except for S corps), but the structure can lead to double taxation, especially for C corporations.
• Complexity: Establishing a corporation is more intricate than other business structures, requiring more paperwork and formalities.

How to form a corporation

Follow these ten steps to incorporate as a C, S, or B corporation.

How are corporations taxed?

Understand how registering as a corporation impacts your taxes.

S corporation basics

Should you choose an S corp as the legal structure for your business? Learn the basics and what alternatives are available.

B corporation basics

Should you choose a B corp as the legal structure for your business? Check out this detailed overview of how this business entity functions and the pros and cons you’ll contend with.

A nonprofit is a “not-for-profit” business structure, meaning the business does not exist to generate revenue for shareholders, but rather funnel business revenue into a social mission, cause, or purpose.

Who is a nonprofit for?

Nonprofits cater to those with missions centered on charitable, educational, scientific, or religious purposes. Examples include homeless shelters, conservation groups, arts centers, and educational institutions.

What’s the difference between a nonprofit and a cooperative?

Like a nonprofit, a cooperative is a business with a social mission that doesn’t divide income between shareholders but toward a cause or purpose. However, while some states view nonprofits and cooperatives as the same, a cooperative differs because the members own it, referred to as “user-owners.”

If you plan on organizing your business to be democratically owned, looking into the cooperative business structure might be a good idea to look into the cooperative business structure .

• Complex setup: Establishing a nonprofit requires steps similar to forming a corporation, including filing articles of incorporation, creating bylaws, and organizing board meetings.
• Fundraising will be your main priority: Nonprofits generally rely on fundraising and grants to keep a flow of income into their business.

What is a nonprofit corporation and how to start one

Learn the basics of setting up a nonprofit corporation.

How to earn income as a nonprofit corporation

Learn how related and unrelated business activities can generate revenue for a nonprofit corporation.

• Making your business legally compliant

Choosing a business structure is the first legal step you’ll take. Your choice will impact your taxes, fundraising, and personal liability. 

Tim Berry, founder of Palo Alto Software (maker of Bplans) reminds small business and startup founders that choosing a business entity or structure is something to take seriously. He says:

“Make sure you know which legal steps you must take to be in business. I’m not an attorney, and I don’t give legal advice. I strongly recommend working with an attorney to review the details of your company’s legal establishment and licensing. The trade-offs involved in incorporation versus partnership versus other structures are significant. Small problems developed at the early stages of a new business can become horrendous problems later on. In this regard, the cost of simple legal advice is almost always worth it. Don’t skimp on legal costs.”

TLDR: Take time, carefully weigh your options, and consult a legal professional.

Once you’ve chosen, check off the remaining legal requirements to start a business. While you can complete most of these in any order, here are a few suggestions.

• Apply for a federal and state tax ID
• Obtain licenses and permits
• Register your business name

Kody Wirth is a content writer and SEO specialist for Palo Alto Software—the creator's of Bplans and LivePlan. He has 3+ years experience covering small business topics and runs a part-time content writing service in his spare time.

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Sole Proprietorship

Partnership, limited liability company (llc), corporation, templates and examples to download in word and pdf formats, how to choose the best legal structure for your business.

Deciding on a specific type of legal structure when you've just started your business journey can be complicated. It's hard to know exactly what the differences are, how the different structures can benefit you, and what any risks might be.

Luckily, it doesn't have to be so complicated! In fact, we've published this guide on everything you need to know about choosing the right legal structure for your business to help you along the way.

The most common business structures are sole proprietorships, partnerships, limited liability companies, and corporations. Here, you'll learn about each one in detail to help you choose the right fit for your business, as well as a non-profit, which you might consider for a new charitable business.

What type of structure you choose will make a big difference over the life of your business. It can have significant tax implications, as well as implications for your personal level of risk. It is not a decision that should be made lightly.

Below, we examine each common business structure in detail.

A sole proprietorship is the simplest type of business structure and the easiest to form and maintain. A sole proprietorship is basically a business that is you - and you are the business! For example, if you were a freelance writer on the internet and wanted to operate as a sole proprietorship, you wouldn't have to do anything at all to already be up and running, as long as you wanted to operate under your name.

In a sole proprietorship, no separate legal entity is created. If you'd like to operate under a special name, like a new business name or just a different name other than your own legal name, you would file what is called a "Doing Business As" (or DBA, as it is referred to) document with your state. All this document does is tell the state that you, as a legal person, are doing business under the name you've chosen for your business.

Because of the simplicity of the sole proprietorship, the way that your taxes are handled is also fairly simple. The taxes of the sole proprietorship would "pass through" to you, meaning you report any profit or loss on your own taxes and don't have to go through a separate process for the business.

One of the biggest drawbacks to a sole proprietorship is that you can be personally on the hook for any business liabilities - whether you make a big financial loss one year or whether your business gets sued. That's because in a sole proprietorship, there is no separation between you as a person and you as a business, so anything you own, in terms of assets, may be up-for-grabs by any creditors or the public to whom you are facing liability.

Another big drawback is that you may have a hard time raising any money. In a sole proprietorship, you can't issue stock in the company, so it could be hard to attract capital investors. You also may not have much success getting a bank loan, because banks generally don't favor lending to sole proprietorships.

How to form a sole proprietorship

To create a sole proprietorship, as mentioned above, you wouldn't have to file anything with your state other than a DBA, if you'd like. There can be fees associated with the DBA form, which vary per state. But keep in mind you might have separate documents to file, depending on your business. These could include special licenses or permits.

Why you might choose a sole proprietorship

A sole proprietorship is a good idea if you are a solopreneur with a small business and you are planning to keep it that way. It's very easy to form (you either have to file no documents or just one DBA) and you can get focused on starting your business right away. It's also very cheap to get started.

Especially if your business may not be facing a high level of risk, a sole proprietorship might be for you. A sole proprietorship wouldn't be recommended if, let's say, you ran a business that dealt with large amounts of other people's money on a regular business, or as a health professional, or really any area where the risk of being liable for something serious is high.

Final overview

Sole proprietorship benefits:.

1. It's cheap and easy to form.

2. Taxes are easy to keep track of.

3. You still have the option to have employees if you would like.

Sole proprietorship drawbacks:

1. There is a high level of personal risk for liabilities.

2. You may have difficulty raising funds.

If a sole proprietorship is the simplest business structure for an individual looking to operate their own small business, a partnership might be considered that for two or more people.

In a partnership, the two or more "partners," as they are called, each generally have a say in how the company runs (depending on the structure of the partnership) and each own a piece of the company, including its profits and losses.

In a partnership, you can also have different types of partners - general partners and limited partners - or you can have just a general partnership with all the same types of partners. General partners are equally responsible for everything: all the profits, any potential losses, any liabilities that might come up, and general responsibility for the company, including the amount of work done. Limited partners are those that are basically only partners for a financial reason, in that they invest but have not much else to do with how the company runs. Overall, partnerships with limited partners are a little rarer, as people like to go into partnerships with equal weight.

Imagine a situation where two people decide to open a yoga studio together. Their structure of choice may be a partnership.

A joint venture, formed with a Joint Venture Agreement , is a type of general partnership that only lasts for one specific project or a limited amount of time.

Joint venture is a generic term for any business relationship between two parties for a limited time. A joint venture could be for a brand new business, or just one marketing promotion, or even just a project between two already-formed businesses. In a joint venture, the parties could decide to form a temporary partnership, with a Partnership Agreement , but they don't have to: they can also retain their fully separate legal identities and just operate with a Joint Venture Agreement.

Taxes in a partnership can pass through, just like in a sole proprietorship.

The formation of a partnership, however, can be very complicated. Many states have adopted something called the Uniform Partnership Act, which makes the written Partnership Agreement very important. Partners will need to figure out everything from how they'll run the day-to-day business to what happens if the business folds or if someone wants to leave.

The Uniform Partnership Act is similar to a model statute or model law, in that it was drafted to be applicable uniformly, but states each had to individually adopt it. The Uniform Partnership Act, or UPA, gives guidance on how business partnerships should be formed, governed, and dissolved.

How to form a partnership

As mentioned above, the basis of partnership formation is the written Partnership Agreement, which sets out all of the details of the business relationship between the parties. Unless you also want to file a DBA, you won't need to file any partnership documents with your state.

Keep in mind, however, that as above, you may need specific licenses or permits for your particular business model.

Why you might choose a partnership

A partnership is a good idea if you are running a small business with another individual or a few individuals. As with a sole proprietorship, it's very easy to form (you either have to file no documents with the state or just one DBA) and you can get focused on starting your business right away. It's also very cheap to get started, just like a sole proprietorship.

If you're not sure of the trustworthiness of your potential partners, however, a partnership may not be the way to go for you, as you could be exposing yourself to a high level of risk just because of the actions of your partners. Either way, however, you should always have a well-written Partnership Agreement in place.

Partnership benefits:

1. It's relatively cheap to form.

2. Generally, unless you have a DBA, you won't need to file with the state.

3. Taxes pass through.

Partnership drawbacks:

1. The Partnership Agreement can be a complicated document.

2. It can be very risky if your partners are not trustworthy.

A Limited Liability Company, or LLC for short, has largely become the preferred form of structure for many small- to medium-sized businesses, and even for a lot of solo business owners. The reason for this is because it has a lot of benefits of other types of business structures, without as much of the risk.

In an LLC, there is a lot of customization available for how the business is run. LLCs can be used for small businesses or large ones. You can form an LLC just for yourself or have an LLC with many different members. The main benefit of an LLC is that your personal assets are shielded from liability - hence the name, "limited liability" company.

Taxes still pass through in LLCs. If you are a single-member LLC, the taxation is similar to a sole proprietorship. In a multi-member LLC, you are taxed on just your portion of the profits.

LLCs can, therefore, be formed for almost any purpose - for a single freelance artist or a group of people looking to open a bakery together, for example. LLCs can even be formed for professionals, like a legal or medical practice.

Since all business structures are formed according to the state, and not federal, government, the requirements to file and run the business, especially for the more complicated structures, can vary.

Forming an LLC is more complicated than either a sole proprietorship or partnership, as it involves filing specific documents in a specific form with the state.

How to form an LLC

An LLC is generally filed with your state by drafting Articles of Organization , the creation document for the company. Before this, you'll also have to ensure that you have a business name that will work by running a search on your proposed business name with your state's Secretary of State (usually this can be done easily on the Secretary of State website). An Operating Agreement is also a very good idea to have drafted (though it is not required), especially if you have more than one LLC member.

If you would like to operate under a special name for your LLC, you may also have to file a DBA.

Why you might choose an LLC

An LLC is a good idea when you want to have the maximum amount of liability protection for your business, either as a solo business owner or as part of a team and you don't want to build a corporation (more on that below). It's also a good idea if you still want the simplicity of taxation and the ability to organize your business as you like.

Whenever you file your LLC, make sure you keep all of the records separate to ensure your liability protection. Your organizational records, banking records, and, if applicable, personnel records all need to be records of the LLC specifically, not mixed in with your own personal records.

LLC benefits:

1. You are protected from personal liability.

2. Taxes pass through.

LLC drawbacks:

1. It's a little more expensive and complicated to form than a sole proprietorship or partnership.

2. Your liability is subject to the separateness of all of your records.

A corporation is generally the most complex legal structure , involving a lot of time and resources at its formation and then on through its life. A corporation is its own separate entity - often sometimes compared to a business version of a legal "person." In other words, the corporation is its own body separate and apart from you or any of the other owners, called "shareholders."

A corporation can take one of three main forms: the C corporation, the S corporation, or the lesser-known B corporation.

Most big companies in the United States, like Fortune 500 companies, are organized into a C corporation. It's the "traditional" corporate structure that people think of when they think of corporations. In a C corp, there are owners, called shareholders as noted above, who all put money into the business and receive shares, or stock, in return. The corporation gets taxed on its own - but so do any shareholder earnings, which means that with corporations, there is what's called "double taxation." All that means is that money into the corporation gets taxed as does money to the shareholders. In a C corp, there is almost no personal liability of the shareholders. Additionally, there is the possibility of the shareholders earning a lot of income if the corporation ever goes public.

The S corporation is a slightly different entity, similar to the C corp, but with the possibility of pass-through taxation. As discussed in the other business forms, what this means is that profits and losses can go straight to the owner or owners of the S corp, making it a good idea for small businesses. The S corp is a little more limited than the C corp in most states, however, as it can usually only be held by a certain limit of private individuals (for example, up to 25 owners that all have to be real people, rather than legal entities).

A B corporation is a lesser-known structure than the others and that's because it won't be applicable to most people. B Corps are designed for those that want to form essentially a C corporation but for some social good. The B stands for "benefit." A B Corp is very similar to a C Corp, except that sometimes the corporation receives certain tax breaks.

How to form a Corporation

Corporations are formed by filing a significant document covering the details of the corporation with the Secretary of State, called the Articles of Incorporation . Most corporations need to have a viable business name and go on to obtain a tax identification number from the Internal Revenue Service.

It's a good idea to also draft a document called the Corporate Bylaws , which set down the governing rules for the corporation.

Why you might choose a Corporation

You might decide to file a corporation if you are looking for a lot of growth potential for your business or if you knew you wanted to start bringing on shareholders right away. A corporation is a good idea if you plan to hire a lot of employees, as well.

It's probably not a good idea for very small business or individuals who don't plan to grow at a very high rate, as the expense of setting up and maintaining the structure, as well as the double taxation, would easily make it more cumbersome than its worth.

Corporation benefits:

2. Raising capital may be easier here than any other business form.

Corporation drawbacks:

1. It's more expensive and complicated to form than any other business form.

2. It's also complicated and expensive to maintain.

3. Double taxation may end up costing you more.

A non-profit is different than all of the other business structures - and the difference is in its name. Non-profits are created for a different reason than just generating profit; usually, the reason is some kind of social cause.

Non-profits are tax-exempt entities, and because of this, they need to have a specific purpose that is either charitable, religious, or educational.

How to form a Non-profit

Forming a non-profit requires Articles of Incorporation with the Secretary of State. You'll then need to file specifically to obtain tax-exempt status from both your state and the federal government.

If you plan to have multiple people in your non-profit, drafting Non-Profit Bylaws is a good idea.

Why you might choose a Non-profit

The option for a non-profit is really only there if you have a business that is for charitable, religious, or educational purposes. Once you decide that you do, then you must ensure you really aren't running a business for profit and that the primary purpose is for another reason. If those requirements are met, the non-profit is the best choice for you.

If you'd like to run a business for a social cause, but still want to have the main goal of earning a profit, a B corporation might be better suited to your needs. With a non-profit, one of the main activities will simply have to be fundraising to keep the business afloat. In a B corporation, however, you can do good and still turn a profit.

Non-profit benefits:

1. Tax-exempt status can be obtained.

2. It's the best structure for any primarily charitable business.

Non-profit drawbacks:

1. You must meet the requirements to open a non-profit.

2. Your business can't be run primarily to earn a profit.

When deciding what type of structure might be best for you, ask yourself the following questions:

1. How much time and effort am I willing to put in to set up the business at the beginning?

2. How much time and effort am I willing to put in to maintain the business over time?

3. Is pass-through taxation important to me?

4. What will be personal liabilities be?

5. Am I interested in easily raising capital?

Once you've asked yourself these questions, with the knowledge obtained from this guide, you'll be in a great place to decide what the best structure is for your needs.

About the Author: Anjali Nowakowski is a Legal Templates Programmer at Wonder.Legal and is based in the U.S.A.

• Partnership Agreement
• Articles Of Organization
• Non-Profit Bylaws
• Corporate Bylaws
• Articles Of Incorporation

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Start » startup, getting ready to launch how to choose the right business structure.

Choosing the right business structure can be tricky. We walk you through the pros and cons of each.

When you first start a business, your mind may be swimming with an endless number of tough decisions to make. One of those – choosing the proper legal “corporate form” – can be a complicated endeavor. You do not have to overthink it, though, and your initial decision is not necessarily set in stone. Plenty of huge companies started as sole proprietorships before shifting to a more complicated corporate form, and so too, many small startups have unnecessarily burned precious startup capital on lawyers for too-complicated legal structures.

Here then are some of the basic pros and cons to think about when structuring your small business.

Sole proprietorship

Contrary to popular belief, you do not necessarily need to set up any type of formal structure before launching a business. In fact, most of us have run a sole proprietorship without even knowing it. If you ever got paid directly for babysitting or mowing a lawn, you were running a sole proprietorship. A sole proprietorship is simply a business owner who runs a business without any formal corporate structure. They simply report their profits and losses on their personal tax return (or at least they should).

Ideally, you will create a separate checking account for your proprietorship and keep good records of any profits and losses. That will be important come tax time. You should also register the name of your business with the state and you may also need local business licenses. That said, all in all, setting up a sole proprietorship requires only a very minimal amount of time, effort and expense.

The best thing about a sole proprietorship is that it is easy to create and maintain. Setting up many types of corporate forms can cost anywhere from $50 to thousands of dollars, but that is not the case with a sole proprietorship.

The biggest drawback of sole proprietorships is the potential for personal liability. For example, if you chose to incorporate your business instead, your corporation is a separate legal entity apart from you. The corporation, not you personally, is liable for the business’ debts and liabilities.

This is not true for a sole proprietorship.

If you are working as a sole proprietor and your company gets into trouble, you and your business are one and the same. For example, a woman in Pennsylvania that ran a grocery store as a sole proprietor for many years was recently forced into bankruptcy. She now personally owes her grocery store's bakers and vendors, and a judge may sell her home to try to pay the debts of her store.

The other drawback is obvious. A sole proprietorship can only have the one sole owner. If you want your business to survive you, or you want to go into business with someone else, you will need to choose another entity.

[Read our full guide on sole proprietorships ]

General partnership

The easiest way for two or more people to go into business together is to form a general partnership . Like a sole proprietor, general partners usually do not need to file any formal paperwork, although having a written partnership agreement that spells out duties, responsibilities and financials is strongly advised. Partners generally share profits and losses equally, jointly run the business, invest money together, and own property together.

General partnerships are easy to form, and the profits (or losses) of the partnership are reported on the partners’ personal tax returns. One of the biggest risks of a partnership, however, is that each partner can make decisions for the whole, typically unilaterally, and yet all partners are responsible for that decision.

Similarly, as with a sole proprietorship, each partner is personally liable for the debts of the business. There is no corporate shield. Additionally, a partnership can be said to be formed by the actions of the participants even if they did not intend to start a partnership. One final big limitation with partnerships is that they are usually destroyed when one partner leaves.

[Read our full guide on general partnerships .]

Contrary to popular belief, you do not necessarily need to set up any type of formal structure before launching a business.

C corporation

A corporation is a legal entity that has two main features: (1) limited liability, and (2) infinite life. Both of these should be attractive to an entrepreneur. As indicated, limited liability is very important because it allows people to enter into a business without putting their personal assets at risk. For example, if you bought stock in Coca Cola, you would not want to personally be sued if the company sold a tainted batch of soda. Instead, if Coca Cola goes bankrupt, its shareholders would only lose the money they put into the company.

“Infinite life” means just that. A corporation can live on as long as its shareholders keep it alive. A sole proprietorship will obviously die when that sole proprietor dies or quits the business. A corporation is owned by its shareholders, though, and will carry on even as some shareholders quit, sell their shares, or die.

Corporations have a tremendous amount of flexibility in how they are formed, but probably the most important distinction for a small business is choosing a tax treatment. A " C corporation " is one that chooses to pay the corporate income tax directly to the government (as opposed to flowing through to the owner’s personal return.) Most large companies like Xerox and Amazon are C corporations, which refers to Subchapter C of Chapter 1 of the Internal Revenue Code.

Limited liability and endless flexibility. As mentioned previously, the main reason to create a corporation is to limit the liability of the business owners. A corporation can be set up in an infinite number of ways with all kinds of formal management processes in place. Additionally, major investors who often work with corporations will not get involved if the business is structured any other way.

Double taxation and complicated setup. C corps are subject to double taxation, that means that the company is taxed once on earnings, and then shareholders are taxed again on distributions. This process has been made less painful by recent changes to the U.S. tax code, but corporations in the United States are still taxed at 21%.

[Read our full article on C Corp.'s]

S corporation

S corps are often the preferred legal structure for many a small business because of

• Limited liability
• Tax savings

S corps are "pass-through" entities, meaning, while the owners still get the benefits of limited personal liability, profits from the corporation flow through directly to the owner’s personal taxes. S corps therefore are not taxed separately. The IRS has strict requirements for S corps, but there is no actual limit on the size of an S corp.

Limited liability and tax relief. S corps come with all the limited liability benefits of any other corporation, while still allowing the business to be structured a number of ways. The IRS restricts some things for S corps that a C corp can do, though; for example, a C corp can have more than one class of stock, while an S corp cannot.

The most important thing about an S corp is that it avoids double taxation . S corps can make distributions to its owners that are not subject to income tax or self-employment taxes. In order to keep S corps from using that rule to completely avoid paying employment taxes, the IRS does require S corps to pay market-rate salaries to its owners.

A more complicated setup. S corps can sometimes be relatively complicated to set up, and simple mistakes can cost an S corp its status. A professional should usually be involved.

Limited liability company

Limited liability companies, or LLCs, are a relatively new corporate form that was invented in Wyoming in 1977 at the behest of an oil company seeking to launch a new venture that would be run like a partnership, have limited liability, and also avoid double taxation at the federal level. Wyoming did not have a state income tax at the time, so, since the state legislature did not have to worry about losing tax revenues, it agreed to try it.

Florida created a similar scheme in 1982 and the U.S. Congress started to pay attention. In a 1986 tax reform bill, Congress blessed the LLC concept, and today LLCs can be formed in every state that will be honored in every other state. In fact, LLCs have become “undeniability the most popular form of new business entity in the United States” despite being somewhat new.

The best of both worlds. LLCs were created to allow owners to enjoy all of the best parts of the other corporate forms, so they have a lot of pros.

• LLCs are easy to form, and, if used properly, provide limited liability like any other corporation. Forming an LLC is typically as easy as filling out a form and paying around $10.
• An LLC is easily managed by its members, who vote in proportion with their membership. So, if a two-member LLC is owned 60% by one member, that member basically makes all the decisions. LLCs can also have one member, making it a “single-member LLC” that runs just like a sole proprietorship but with limited liability protections.
• LLCs can also grow to have hundreds of members that oversee the business while hiring extensive teams of managers to run the business.

When set up correctly, an LLC can be taxed however you want . LLCs are often treated as “disregarded entities” where the LLC’s activities are accounted for on its owners’ tax returns, just like a sole proprietorship or partnership. LLCs can also be set up as an S corp tax-wise, or they can elect to pay corporate income taxes to avoid passing through profits and losses to their members.

The cons of an LLC are few and far between. There is some cost to creating them, typically ranging from $50 to $500. LLCs are limited in their ownership structure, as they cannot sell non-voting shares the way a corporation can. LLCs cannot deviate from being member-controlled, either. For these reasons, investors are somewhat leery of the LLC, making them unsuitable for most large businesses and for small companies hoping to grow rapidly.

[Read our full guide to LLC' s]

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• How to Draft an Effective Business Plan Considering the Legal Implications

The road to the creation of a new business is a long one that is often filled with unexpected challenges and accomplishments. While the unpredictable nature of starting a business can be appealing to some, for many there is value in developing a plan to help guide new owners through the first months and years of operation. For this reason, one of the most important steps that entrepreneurs can take when starting out is to carefully and thoughtfully develop a comprehensive business plan.

What Is a Business Plan?

A business plan is both a map and a marketing tool for your business. A business plan helps you carefully set forth the purpose, goals, and priorities of your new business, along with guideposts to help ensure that you stay on the right path. For instance, a business plan may require you to consider what the primary purpose of your business is, or the good or service you intend to provide, who your potential customers are, and how you intend to reach them in an effective and efficient manner. A business plan also allows you to make an honest evaluation of the current status of your business and what you will need to do to get to where you would like to be. This includes taking the time to compile your business balance sheet, analyze existing income and expenses, and determine anticipated financial needs.

Creating a detailed business plan can help business owners acquire outside funding .

In addition, a business plan serves as a marketing tool for new business owners who are attempting to gain financial backing, operational support, or mentoring for their new business. The financial aspects of a business plan lets potential funders or lenders analyze your current income streams and the likelihood of repayment, while the detailed explanation of your business objectives and operational plans helps to convince interested parties that you have taken the time to carefully plan your business endeavors and are invested in the success of your company.

How to Write a Business Plan

There is no one specific way to write a business plan. However, there are key components that most business plans should include, and these are good starting points when working on your own plan. It may also be worth reaching out to an experienced corporate attorney to help you review and revise your business plan before presenting it to others in the business community.

Business plans typically start with a summary of the business and its objectives, and then they describe the operations of the business, the good or service it will be providing, and potential income streams in more detail. Business plans should also include a detailed description of the proposed management structure of the business, including officers or directors and possibly the envisioned composition of the board. Additionally, business plans typically include extensive financial documentation, such as balance sheets, income projections or growth model projections, any pending loan applications, tax returns of the entity, and copies of any relevant legal agreements. If the business has already been in operation for some time, the business plan may also include financial records for the months of operation.

• Summarize the business and its objectives
• Outline how the business is organized and managed
• Describe what the business sells
• Identify potential income streams
• Include financial information, such as balance sheets and projections

Using Your Business Plan

Once you have completed a business plan that you are happy with, you will find that you will often continue to refer to your plan even months or years after it was initially completed. In the initial stages, you can use your business plan to attract investors, partners, board members, or other advisors who are interested in the model you have proposed and would like to contribute to its success. As your business develops, you can continue to refer to the plan to guide you in business decisions, as well as to track timelines or certain goals that you hoped to meet. Even after your business is well-developed, returning to your business plan can help guide your yearly planning for your company, allowing you to modify your goals as they are achieved.

Last reviewed October 2023

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Determine the Legal Structure of Your Business

Free Small Business Partnership Contract Template

Radhika Agarwal

• December 13, 2023

13 Min Read

Consider the following situation: You have a brilliant business idea and have planned your business down to the last detail. You are most probably ready to get going. But, hold on. Did you choose a legal business structure? If not, you might want to decide the same before starting out.

Though picking an option amongst several similar-looking ones might seem intimidating at first, picking the right one can save your business from several legal hassles later on.

A proper legal structure decides whether you’ll stay on the good side of the law or not, both literally and figuratively.

Want to know how? Follow along to find out.

Why Does the Legal Structure of a Business Matter?

Against popular belief, a legal structure not just decides the taxes you’ll pay. It also decides the level of risks to your personal assets (your personal savings, car, house, etc.) and your business’s ability to raise funds through loans and investments .

Going through all of your options can help you decide which one fits the best for your business. Moreover, it also helps you finalize if you would need an attorney’s help or not.

So, if you want to get a quick overview of what different types of business structures would look like, read on.

What Are Different Types of Business Structures?

Depending upon the type of ownership, liability on personal assets, and size of the firm, the following legal structures exist in the US:

Sole Proprietorship

Partnership, corporation.

Suppose you plan on selling artwork, retail products, or any product or service under the sun for that matter. Also, you want to go through as little paperwork and legal procedures as possible.

Then a sole proprietorship might be for you. Especially, if you plan on starting the business under your name, you might not have to do any paperwork at all.

Even if you want to have a domain name , registering your domain name would be the only legal procedure you’ll have to go through. And that’s fairly simple and inexpensive.

Hence, a sole proprietorship is a perfect business structure type for those who have a product or service and wish to start selling it right out.

How to form a sole proprietorship?

A sole proprietorship is fairly simple to form. If you have your business idea and plan sorted, you can start your business. Without any official registration or legal framework whatsoever.

Although you should keep in mind that depending upon your industry you might need to get some licenses and permits before you start.

If you are doing business under a name other than your own, you would also have to get a DBA or “ doing business as.”

A sole proprietorship has the following advantages:

• Easy to set up: A sole proprietorship is fairly easy to set up and involves little or no legal hassles.
• Relatively Inexpensive: Setting up a sole proprietorship is the cheapest of all legal structures. All you have to pay is a small fee for a business license and business tax depending upon the location of your business .
• Dissolution is easy: As your business has no stakeholders except you, the dissolution can happen without any disagreements or problems.
• You are the sole benefactor of profits and sole bearer of losses: Your profits belong only to you and you aren’t answerable to anyone for your losses.

Disadvantages

Although sole proprietorship might look like a great option right now, it has its fair share of disadvantages too. Which are as follows:

Liability on your assets: As you and your business are a single legal entity, if things go south your personal assets would be in danger. i.e., you’ll have to pay the debts incurred through your business using your personal assets.

Difficulty in raising capital: It is tougher for sole proprietors to acquire a small business loan or funding. Banks are often less willing to give loans to sole proprietors as they are considered less credible. Also, you cannot sell stocks to generate funds as a sole proprietor .

Limited tax savings: Sole proprietorships do not get tax benefits like corporations do for offering benefits like medical reimbursements and insurances to their employees.

Suppose you are an architect and want to start a firm with your friend who’s an interior designer.

Depending upon the ratio of contributions you make towards the working of the firm you’ll have a certain share in profits and losses of the firm.

It can either be equal or 40 to 60, etc. Also, the size of contributions can be measured both by the size of your investments or the amount of work you provide.

For example, if your friend has invested a higher sum of money but you work more. So, chances are that your ratio in profits would be equivalent.

Apart from that, a partnership is a lot like a sole proprietorship but instead of being the sole owner of the business, you have a partner.

Your partner would have a predetermined share in the profits and losses of your firm.

How to form a partnership?

Just like a sole proprietorship a partnership is fairly simple to form. The only difference is a partnership agreement .

Having a partnership agreement is crucial to this business structure type. A lot of things can go haywire if you don’t work on pre-decided terms and conditions.

Your partnership agreement would decide your share in profits and losses, the type of partnership you have, and what would happen if you decide to dissolve the partnership in the future.

Types of partnership

A partnership can be of the following types:

• General Partnership: In a general partnership, all the partners have an equivalent stake in the business.
• Limited Partnership: A limited partnership has partners who play the role of an investor and have no say in the functioning of the business.
• Joint Venture: A joint venture is a partnership that exists for a limited period or for certain projects.

The advantages of a partnership can be given as follows:

Easy to form: Just like a sole proprietorship, a partnership is fairly easy to form. And requires a very little amount of legal procedures.

Has more growth potential: As a partnership combines the strengths and talents of all partners, it has more growth potential than a sole proprietorship.

Moving forward without a partnership agreement can be disastrous: You shouldn’t move forward without a proper legal agreement . There are a lot of things that can go awry without one. And coming to terms with an agreement that suits everyone is difficult for a lot of partnerships.

Unlimited liability on your personal assets: Just like a sole proprietorship, there’s an unlimited liability on your personal assets. In such structures, you can lose your personal belongings if your business fails.

Difficulty in dissolution: Dissolution is tougher in partnerships as the business has multiple stakeholders.

Consider the following situation: You want to start a business but have a significant amount of personal belongings that you don’t want to risk.

Then an LLC or a limited liability company might be for you. In an LLC you are taxed only on your profits.

Also, there’s no liability on your personal assets as you and your business are separate legal entities.

An LLC is a fairly new legal structure and is good for industries where lawsuits are common. Moreover, an LLC gets the best of both worlds.

Its tax structure is like a partnership and it has a limited liability structure like a corporation.

Also, unlike a corporation, an LLC can be set up by smaller businesses too.

How to form an LLC?

An LLC is formed by creating a separate legal entity for your business. Although it requires way more paperwork than a sole proprietorship or partnership, it is a more secure structure than either of those.

And you might think that a little paperwork is worth the benefits it provides. And it definitely is! You can form an LLC either on your own or with a partner.

The specific amount of paperwork required for an LLC varies from state to state.

Your personal assets would be safe: One of the major benefits of any limited liability structure is that your personal assets remain unaffected if things go downhill.

The tax structure is beneficial: You are only taxed on your profits in an LLC.

An LLC is tougher to set up: It is comparatively more expensive and complicated to set up. You might have to take some legal advice as well before you set up an LLC.

An LLC has to be dissolved within 30 years: An LLC has to be dissolved in 30 years or less, depending upon your pre-decided agreement. Although, all states have different laws regarding the dissolution of an LLC.

Corporations are one of the most commonly known types of business structures out there. They are usually larger, have more employees, and take the highest amount of legal work to set up.

The biggest advantages of a corporation are its limited liability structure and the tax benefits it gets.

Most of the bigger companies and MNCs follow this structure, but if you have a small business it is neither possible nor feasible to have such a structure. Though, a lot of LLCs and partnerships turn into corporations as they grow bigger.

How to set up a corporation?

Setting up a corporation requires the highest amount of paperwork and legal procedures.

You have to register your business name and get your EIN or employer identification number, etc.

Also, depending upon your state and type of corporation the legal procedure for setting up a corporation would differ.

Types of corporation

A corporation can be divided into the following types depending upon its size and functions:

A C Corp is the most common type of corporation out there. Most MNCs follow this structure.

To form a C Corp you collect fundings and give stocks equivalent to the funding to your investors.Although double taxation might be a problem, C Corp has the highest opportunity of getting investments. Hence, most companies follow this structure when they go public. For example, if you are a corporate firm with a large number of employees and investors, you’ll follow this structure. Microsoft, Intel, and Apple are popular examples of C Corps.

An S Corp is a pass-through tax entity and is usually owned by families or small groups.

Also, the motive of a C Corp is to grow big and go public, while an S Corp exists to generate profits for its owners. Hence, both the structures fulfill different motives for their owners. An S Corp is very similar to an LLC and is a structure that can be followed by small businesses. A lot of S Corps turn into C Corps as they grow bigger. Apart from that, people choose this structure mainly for the tax benefits it offers.

For example, organization XYZ works towards the social and economic upliftment of underprivileged children. But at the same time, it has investors to whom it has to send back profits. Hence, XYZ organization is not a non-profit but a B Corp. A B Corp is an excellent way of standing behind a social cause and many states provide tax benefits to such structures. Ben & Jerry’s, Seventh Generation, and Etsy are popular B Corps in the US. If we try to understand this further through the example of Ben and Jerry’s, the company has three main motives- product quality, economic reward, and service to the community. Because Ben and Jerry’s is a for-profit company that stands behind a cause it becomes eligible for its B Corp status.

The most limited possible liability: Corporations give the highest amount of protection to your personal assets. If things go awry, your personal assets will be the safest in this structure.

Corporations have a high potential to raise capital: With the option of selling stocks to get funding and more credibility to get loans, raising capital is fairly easy for corporations.

Taxes are filed separately from personal taxes: As taxes are filed separately from personal taxes in corporations your business becomes eligible for corporate tax breaks.

Difficult to set up: Corporations go through way more procedures, legal or otherwise and are fairly difficult to set up. The structure is also not an ideal one for smaller businesses.

Double taxation: You have to pay taxes on both the earnings of the corporation as well as on the dividend you get from it. This disadvantage mainly holds true for a C Corp.

If you want to work towards a social cause and channel all your energies towards it, a non-profit organization would fit the best for you.

The chief difference between any other legal structure and a non-profit is that a non-profit solely exists for fulfilling a social cause and not for earning profit.

Such organizations get tax-exempt status from the government.

As a nonprofit is run for serving society and for personal values, it does not have any advantages or disadvantages as such.

But you should keep the following things in mind before starting a nonprofit organization :

• Your setup will be similar to that of a corporation: You’ll have to register your business’s name as well as your taxation number as a non-profit to get tax exemptions.
• You should have a solid system in place to collect funds: If you choose this business structure, generating funds to keep your firm going will be a chief priority.

In conclusion, the legal structure of a business plan greatly depends upon the said firm’s function and size. The number of legal formalities you are able and willing to fulfill, the laws of the state your business will function from, and so on.

Also, getting legal advice from an attorney while deciding your structure can be of great help for your business. A little expense and effort, in the beginning, can take your business a long way in the future.

Your legal structure would impact a lot of aspects of your business. Hence, you should choose it wisely.

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About the Author

Radhika is an economics graduate and likes to read about every subject and idea she comes across. Apart from that she can discuss her favorite books to lengths( to the point you\'ll start feeling a little annoyed) and spends most of her free time on Google word coach.

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Starting a law firm can be a rewarding and lucrative venture, but it requires careful planning and strategy. A well-crafted business plan is a crucial tool for any law firm looking to establish itself, secure funding, or grow its practice. The business plan will serve as a roadmap, outlining the law firm’s objectives, strategies, and unique selling proposition

Why Every Law Firm Needs a Business Plan

A well-structured business plan is imperative for every law firm, regardless of its size or specialization. While legal expertise is undoubtedly crucial, having a clear vision and strategic direction is equally essential. A business plan serves as a guiding light, defining the firm’s mission, values, and long-term goals. This clarity is vital for aligning the entire firm towards a common purpose, ensuring that everyone understands the objectives and the path to achieving them. Without a business plan, a law firm may find itself navigating uncertain waters, reacting to circumstances rather than proactively pursuing its ambitions.

The Key Components of a Law Firm Business Plan

A well-structured law firm business plan consists of several key components, each playing a crucial role in guiding the firm’s operations and ensuring its long-term success. Here are the essential elements of a comprehensive law firm business plan:

• Executive summary
• Law firm description
• Market analysis
• Organization and management
• Services 
• Marketing Strategy
• Financial plan
• Start-up budget

Section One: Executive Summary

The executive summary is arguably the most critical section of your law firm’s business plan. While it appears at the beginning, it is often written last, as it serves as a concise yet comprehensive overview of your entire plan. This section should capture the reader’s attention, providing them with a clear understanding of your law firm’s essence, mission, and what to expect from the rest of the document. In your executive summary:

• Introduce your law firm: Briefly describe your law firm’s name, location, and legal specialization.
• Mission and vision: State your firm’s mission and vision, highlighting your commitment to serving clients’ legal needs effectively.
• Your unique selling proposition: Clearly state your USP, and present what is unique about your firm that will ensure success.

The executive summary sets the stage for your entire business plan. It should be a concise yet compelling introduction to your firm’s mission, values, and potential. If crafted well, it can grab the reader’s attention and encourage them to explore other sections in detail. If you feel overwhelmed by this, you can write this section last. 

Section Two: Law Firm Description

This section of your business plan provides a deeper dive into your firm’s background, history, legal specializations, and legal structure and ownership. This section should provide a concise yet informative overview of your firm’s identity and history. Here’s what this section should cover:

• Mission Statement: Briefly reiterate your law firm’s mission statement. This statement should encapsulate your firm’s overarching purpose and guiding principles.
• Geographic Location: State out the physical location of your law firm’s office(s). This should include the city or region where your primary office is situated.
• Legal Structure and Ownership: State the legal structure of your law firm, whether it’s an LLC, S-Corp, or another legal entity. This choice is a fundamental aspect of your business model, influencing ownership, liability, and taxation. If your firm’s ownership is not that of a sole proprietorship, provide details on the ownership structure. Explain how the chosen structure aligns with your firm’s business model, decision-making processes, and long-term goals.
• Firm History: Provide the history of your law firm. Highlight key milestones, achievements, and notable moments in your firm’s journey. If your firm is well-established, briefly summarize its history, showcasing your accomplishments and contributions to the legal field.

Remember that brevity is key in this section. Don’t spend too much time, just touch on important points and achievements. 

Section Three: Market Analysis

A well-conducted market analysis will not only demonstrate your understanding of the legal industry but also inform your law firm’s strategies and decision-making. It goes beyond understanding your competition; it delves deep into your potential clients’ needs and expectations. 

Through market analysis, you can segment your target market based on demographics, industry, legal needs, and preferences. This segmentation allows you to tailor your services to meet the specific needs of different client groups. It also helps you identify the pain points and challenges that potential clients face. By understanding their concerns, you can offer solutions that directly address these pain points.

Your market analysis should also reveal the pricing strategies of your competitors. By benchmarking your pricing against theirs, you can position your services competitively. You can choose to price higher if you offer unique value or lower if you aim to attract price-sensitive clients. Your market analysis should reveal areas where your competitors may be falling short. Use this information to frame your services as the solution to these weaknesses. For example, if competitors have slow response times, emphasize your firm’s commitment to timely communication. 

Showcase your firm’s USPs that directly address client needs and preferences. If you excel in a particular practice area, have a reputation for excellent client service, or offer innovative fee structures, use these strengths to attract your preferred clientele. Ultimately, a well-documented market analysis not only informs your law firm’s business model but also guides your approach to client acquisition, pricing, and service delivery. It ensures that your legal services align with client expectations and positions your firm for success in a competitive legal industry

Section Four: Organization and Management

Image Source – Creately

This section provides a clear picture of your firm’s internal structure and leadership. Name the key stakeholders in your law firm and what they bring to the table. Highlight any unique experiences or expertise that each partner brings to the firm. This could include prior work at prestigious law firms, involvement in landmark cases, or specialized knowledge in a specific area of law. Explain how these experiences set your firm apart and enhance its capabilities. You can also include an organizational chart that visually represents your law firm’s structure. This chart should showcase the hierarchy, roles, and reporting lines within the firm. By including the names, educational backgrounds, unique experiences, and organizational chart, you paint a comprehensive picture of your law firm’s leadership and structure. This not only builds confidence in your team’s capabilities but also showcases the depth and expertise of your staff to potential clients, partners, or investors.

Section Five: Services

This section is the core of your law firm business plan. Here, you will go into detail about all aspects of your services. Present in simple words:

• The problem(s) your law firm is addressing and your approach to how to alleviate those pain points? Answer these questions, and provide in detail how your firm is in the best position to tackle this problem. 
• The solution(s) you are providing. This should describe how your law firm resolves your prospective market’s needs. This should include the work you do, and the benefits that each client will receive if they work with your firm. 
• Your law firm competition.  This should describe what advantages your law firm has over your competitors? What you do differently when providing your solutions and how your clients will gain additional benefits when they work with your law firm.

Section Six: Marketing Strategy

As you craft your business plan, keep these four essential questions in mind:

• What Is Your Firm’s Value Proposition? Clearly define what sets your law firm apart from others. This should guide your marketing and sales strategies, emphasizing the unique value you offer to clients.
• Who Is Your Target Audience? Identify your ideal client profile. Understanding your target audience helps tailor your marketing efforts to reach those most likely to benefit from your services.
• What Are Your Growth Goals? Set specific, measurable growth goals for your firm. These goals should inform your sales and marketing strategies, outlining how you plan to achieve them.
• How Will You Measure Success? Determine key performance indicators (KPIs) to measure the success of your marketing and sales efforts. Whether it’s tracking client acquisition rates, website traffic, or revenue growth, having measurable metrics will help you gauge your progress and make informed adjustments.

It is also valuable to perform a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) to assess your law firm’s internal and external factors. Describe your online marketing efforts, including your website, social media presence, and email marketing campaigns. Explain how you plan to leverage marketing  to reach and engage potential clients effectively. You should also define your pricing structure and fee arrangements. This may include hourly rates for specific legal services, retainer agreements for ongoing representation, or flat fees for standardized services. 

Section Seven: Financial Plan

If you want to expand your law firm and ensure a steady income, it’s essential to create a financial strategy for your practice. While you might not have all the answers regarding your firm’s finances, provide comprehensive details. Your goal should be to establish a financial plan, particularly for the initial year of your firm’s operation.

Provide comprehensive financial projections that cover the anticipated income, expenses, and cash flow for your law firm. These forecasts should offer a clear picture of how your firm expects to perform financially. You should also Incorporate income statements, which show your firm’s revenue and expenses, balance sheets that detail your assets and liabilities, and cash flow projections, which illustrate how money moves in and out of your business. These financial statements offer a holistic view of your firm’s financial health.

Explain the assumptions underlying your financial projections. This may include factors like growth rates, market trends, client acquisition strategies, and pricing models. Describe your strategies for achieving growth and how they translate into financial outcomes. This section is critical for demonstrating your law firm’s financial preparedness and sustainability. Investors, lenders, or partners will scrutinize these sections to assess the viability of your firm, making it essential to provide detailed and well-supported financial information.

Section Eight: Start-up Budget

When developing a business plan for your law firm, it is essential to create a realistic startup budget. This involves carefully considering various initial and ongoing expenses and factoring them into your revenue objectives. Here are some instances of expenses to incorporate into your budget:

• Hardware costs, such as laptops, printers, scanners, and office furniture.
• Office space expenses, whether you plan to rent space or work from home.
• Malpractice insurance fees.
• Staff salaries, including potential hires like administrative assistants or paralegals.
• Utility expenses, covering phone and internet services, among others.
• Expenses on practice management software or other tech tools

After itemizing these costs, review them thoroughly. Clearly state the total amount of funding you require to start and sustain your law firm. Explain how this funding will be allocated, including how much goes into covering startup costs and how much is reserved for ongoing operations. Be specific about the purpose of each funding component. 

Additionally, explore tools and solutions that can streamline non-billable tasks, freeing up more time for your legal practice. This not only enhances your overall productivity but also allows you to allocate more time to your legal practice. One exceptional solution that can significantly benefit your law firm operations is a legal practice management software. 

DigitsLaw: The Legal Practice Management Software for Law Firms

DigitsLaw is an all-in-one practice management software that streamlines and simplifies the day-to-day operations of a law firm. Whether you are a small firm or you have law firms in major cities, DigitsLaw can meet the unique needs of your legal practice. Our simple and intuitive tool offers a wealth of features that can make a substantial difference in the success and efficiency of your firm.

Here’s how DigitsLaw can help your new law firm scale:

• Effortless Case Management: DigitsLaw simplifies case management by centralizing all your client information, documents, and communications in one secure location. This ensures that you have easy access to everything you need, right at your fingertips.
• Time Tracking and Billing: With DigitsLaw, tracking billable hours and generating invoices is seamless. You can accurately record your time, expenses, and activities, allowing for transparent and error-free billing processes.
• Conflict Check: DigitsLaw provides a robust conflict check system that assists law firms in maintaining ethical standards and preventing conflicts of interest. By incorporating DigitsLaw conflict check capabilities into your law firm’s workflow, you can enhance your due diligence processes, reduce the risk of conflicts of interest, and uphold the highest ethical standards in your legal practice. 
• Client Collaboration: Foster better client relationships through DigitsLaw’s client portal . Clients can securely access case information, share documents, and communicate with your firm, enhancing transparency and trust.
• Legal Document Management: Say goodbye to the hassle of paper documents and disorganized files. DigitsLaw enables efficient document storage, organization, and collaboration, saving you time and reducing the risk of errors.
• Secure and Compliant: DigitsLaw prioritizes security and compliance, ensuring that your client data and sensitive information are protected at the highest standards.

By leveraging DigitsLaw’s capabilities, you can significantly reduce administrative overhead, minimize errors, and provide a more streamlined and responsive experience for your clients. It’s a strategic investment that will pay dividends as your firm grows and prospers.

Sample Business Plan and Fillable Template

If you’re in the early stages of creating your business plan, we’ve prepared an example that can serve as a reference. You can also download a blank version of our template here. Remember to tailor your plan to your specific requirements and objectives. 

Download your copy of our law firm business plan template HERE

Final thoughts.

In conclusion, crafting a law firm business plan is not just a formality; it’s a roadmap that guides your firm toward success. Whether you’re launching a new law firm or seeking to revitalize an existing one, a well-thought-out plan helps you.  From defining your firm’s mission and values to conducting a thorough market analysis every section of your plan plays a crucial role in shaping your law firm’s journey. It’s not just about impressing potential investors; it’s about setting clear goals, making informed decisions, and ensuring that your firm is well-prepared for the challenges and opportunities that lie ahead.

As you start planning, remember that your business plan is a living document. It should evolve and adapt as your firm grows and the legal industry changes. Regularly revisit and update your plan to stay aligned with your mission, serve your clients better, and achieve your long-term vision.

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Legal Form of Organization in Business Plan

The legal form of organization in business plan is used to decide how the company will function, how roles will be assigned and how relationships will work. 3 min read updated on February 01, 2023

The legal form of organization in business plan is used to decide how the organization will function, how roles will be arranged and assigned, and how relationships will work. These organizational steps should take place at the beginning of the business formation.

Starting a Business

The first step when beginning a business is to name the business. The name must be unique and not in use by another existing entity. The next step is to decide on the organization type your business will use. Each business entity has specific requirements on how they are run including how income is reported. The business types include:

• Sole proprietorship.
• Partnership.
• Limited Liability Company.
• Limited Liability Partnership.
• Corporation.
• S Corporation.
• Tax-exempt organization.

Each type has advantages and disadvantages that should be reviewed before making a final decision. However, the business type you choose isn't permanent. As the needs of your business change, the business entity type can be changed. Examples include:

• Changing a sole proprietorship to a partnership due to growth.
• Switching to a corporation to establish protection that comes with limited liability.

Limited Liability is attractive to business owners because it protects personal assets from any debts or obligations incurred by the corporation.

Business Type Requirements

A major component of selecting a business type is what is required to be legal and the tax implications.

• Applications to the state government are not required.
• Dependent on the state, registering the business may be required with the state and/or country.
• A business license may be required based on the type of business and state requirements.
• The IRS views all business activity as personal. When filing, personal and business income are seen as the same thing.
• A sole proprietorship is personally responsible for all aspects of the business. If the business is sold, it can impact any personal assets if you are found liable.
• In a general partnership, two or more sole proprietors are seen by the IRS as having equal responsibility.
• Any profit and loss distribution is determined by the partnership agreement and is then passed to the individual partners.
• Profit and loss distribution does not have to match the percentage of ownership.
• The partnership is not subject to income or franchise tax.
• The structure and tax implications are similar to a general partnership, but a limited partnership ( silent partner ) allows for ownership without the requirement of being actively involved in how the business is managed.
• Business liabilities are limited to the amount invested by the partner.
• Outside investors can be partners without taking on any liabilities.
• Personal liability protection is provided without having to meet the administrative and governance procedures.
• The Articles of Organization determine the ownership percentages, distribution of profit and losses, and voting rights. In corporations, this is determined by stock ownership.
• Most LLCs use the pass-through method of taxation. This means that taxes aren't paid by the LLC, but by at the personal tax level of the owners. The personal rate is lower than the corporate tax rate. When the LLC files taxes, no money is sent and an owners report is included to show the owners will pay the tax instead.
• Based on the state, the LLC is subject to a franchise tax .
• A corporation can be formed as for-profit or nonprofit.
• Corporations provide a shield from liabilities. This protection is only removed if the owners or board members have been found to be illegally running a corporation and have been breaking federal and/or state laws.
• Corporations can sell stock in the business.
• A Board of Directors is used to manage corporate policies and strategies. This is for both for-profit and nonprofit.
• Corporations continue to exist even in the event of the owner's death, or if owners leave.

If you need help with the legal form of organization in the business plan, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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Content Approved by UpCounsel

• Types of Business Structures
• Best Type of Corporation for Small Business
• Partnership Business Entity: Everything You Need To Know
• Types of Companies LLC
• LLC Partnership
• Individual Ownership of Business
• Partnership Advantages and Disadvantages
• What Is Classification of Business According to Ownership?
• Types of Business Entities
• Benefits of a Close Corporation as Opposed to a Partnership

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19 Mar 2020

How to Write Your Law Firm Business Plan

By Cari Twitchell

News Articles Healthy Strategy

Every new law practice needs a business plan . This is a guide to creating one.

Here is what should go in your business plan once you’ve decided about your law firm business model.

Section One: Executive Summary

This section provides a succinct overview of your full plan. It should also include the following:

• Mission statement.  This statement should be one or two sentences at most, so you can quickly state it off the top of your head at any given moment. It should clearly state your value and offer inspiration and guidance, while being plausible and specific enough to ensure relevancy. For further direction on how to write a mission statement, read this Entrepreneur article .
• Core values.  Your core values outline the strategy that underpins your business. When written well, they help potential employees and clients understand what drives you every day. When written incorrectly, they include meaningless platitudes that become yet another thing forgotten or ignored during practice. To pack the most punch into your core values, write them as actionable statements that you can follow. And keep them to a minimum: two to four should do just fine. You can read more about writing core values at  Kinesis .
• What sets you apart.  If you are like every other attorney out there, how will you stand out? This is known as your unique selling proposition (USP). What is it that will convince clients to turn to you instead of your competition? By clearly stating your USP, you identify what it is about your firm that will ensure your success.

Are you feeling slightly overwhelmed by all of this? Then write this section last, as you’ll find much of what you write here is a summary of everything you include in subsequent sections.

Section Two: Company Description

Write a succinct overview of your company. Here is what it should cover:

• Mission statement and values.  Reiterate your mission statement and core values here.
• Geographic location and areas served.  Identify where your offices are located and the geographic areas that you serve.
• Legal structure and ownership. State whether you are an LLC, S-Corp or other legal entity. If you are something other than a sole proprietor, identify the ownership structure of your firm. How does your law firm business model influence the ownership type?
• Firm history.  If you are writing or updating a plan for a law firm already in existence, write a brief history that summarizes firm highlights and achievements.

This section is often the shortest. Do not spend much time or space here. Touch on the major points and move on.

Section Three: Market Analysis

Done correctly, a well thought out market analysis will help you identify exactly what your potential clients are looking for and how much you should charge for your services. It also enables you to identify your competitors’ weaknesses, which in turn helps you best frame your services in a way that attracts your preferred clientele. You probably already considered some of these subjects when deciding on the small law firm business model, but you need to document them.

Elements of a market analysis include:

• Industry description.  Draft up a summary that encompasses where your particular legal niche is today, where it has been, and which trends will likely affect it in the future. Identify everything from actual market size to project market growth.
• Target audience.  Define your target audience by building your ideal client persona. Use demographics such as location, age, family status, occupation and more. Map out the motivations behind their seeking your services and then how it is you are best able to satisfy their requirements.
• Competitive analysis.  This is where you dive into details about your competitors. What do they do well? Where do they fall short? How are they currently underserving your target market? What challenges do you face by entering legal practice in your field of choice?
• Projections.  Provide specific data on how much your target audience has to spend. Then narrow that down to identify how much you can charge per service.

A proper market analysis includes actual data to support your analysis. If you are unsure of where to find data, Bplans  has a great list of resources for you to use. And if you would like to read further about conducting a market analysis, check out this article from the Small Business Administration.

Section Four: Organization & Management

This section goes into detail about you and any others who may have ownership interest in the firm. The small law firm business model section here should incorporated into the management documentation. Do not be afraid to brag a bit!

• What is your educational background?
• What experience do you currently have?
• Why are you the right person to run your firm?

If there are other individuals involved, it is a good idea to insert your organizational chart here. Visuals help quickly convey information and break up otherwise blocky text.

Section Five: Services

The Services section is the heart of your law firm business model plan. It is where you dive into all aspects of your services, including:

• The problem(s) you are addressing.  What pain points do your preferred clients experience? What can they do right now to alleviate those pain points? Answer these questions, and then take the extra step to explain how those current solutions fail to adequately address their problems.
• The solution(s) you are providing.  This describes how your solutions better resolve your prospective market’s needs. This not only includes the actual work you do, but the benefits that each client will receive based on your work.
• An overview of your competition.  Describe your competition here. For instance, which other solo attorneys and firms provide the same solutions as you? What are your advantages over these competitors? What do you differently when providing your solutions? How will clients gain additional benefits by seeking out your services instead of working with your competitors?

Section 6: Marketing Strategy

Your marketing strategy section needs to address the three P’s:

• Positioning.  How will you position your law firm and your services? What will you say to present your practice in the best light? What short statements can you use to entice a potential client to pursue your services?
• Pricing.  How much will you charge? How does that fit within the legal industry? Within your niche industry? What do clients receive for that price?
• Promotion.  Which sales channels and marketing activities will you pursue to promote your practice? Who is in charge of these activities? Even if you plan to build your law firm on the basis of word-of-mouth referrals, you must remember that most referrals will still look for information about you before contacting you. Know where they will look and ensure you are there.

Section Seven: Financials

Last comes the financials section. It is the key component to your plan if you are going to seek funding to get your practice off the ground. It is imperative that you complete this section even if you are not seeking funding, however, as you need to paint a clear financial picture before opening your doors.

Two main items make up this section: budgeting and forecasting (sales and cash flow). Answer these questions to help you address these items:

• How much starting capital do you need?
• How much money will it cost to keep your practice operating on a month-to-month basis?
• How many cases will you need to close each month to break even?
• How many cases would you need to close to make a profit?
• What is your projected profit and loss for the year?

This section often incorporates graphs and other images, including profit-and-loss and cash-flow tables. The more specific you get with your numbers, the more likely you are to succeed!

One final note: If your goal is to submit your business plan to potential funders, you want to do everything you can to make sure your plan stands out. One good way to do this is to work with a designer to artfully format your plan. Great presentation can take you a long way.

Originally published 2017-09-23. Republished 2020-07-31.

Cari Twitchell

About the Author

@CariTwitchell

/in/caritwitchell/

Website: https://www.customcontentllc.com

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legal business structure example

7 Legal Business Structure Examples for Your Startup

Choosing the right legal business structure for your startup is one of the most important decisions you will make as an entrepreneur. It will affect how you pay taxes, how you raise funds, how you protect your assets, and how you manage your business. There are different types of legal business structures, each with its own advantages and disadvantages. In this article, we will explain seven legal business structure examples and help you decide which one is best for your startup.

1. Sole Proprietorship

A sole proprietorship is the simplest and most common legal business structure for startups. It means that you are the only owner and operator of your business, and you are personally responsible for all its debts and liabilities. You do not need to register your business with the state or pay any fees to start a sole proprietorship. You also have complete control over your business decisions and operations.

However, a sole proprietorship also has some drawbacks. You have unlimited personal liability for your business, which means that if your business gets sued or goes bankrupt, your personal assets (such as your house, car, or savings) can be seized to pay off the debts. You also have to pay self-employment taxes on your business income, which can be higher than corporate taxes. Additionally, you may have difficulty raising funds from investors or lenders, as they may perceive your business as risky or unprofessional.

2. Partnership

A partnership is a legal business structure where two or more people agree to share the ownership and management of a business. There are two types of partnerships: general partnerships and limited partnerships. In a general partnership, all partners have equal rights and responsibilities in running the business and are personally liable for its debts and liabilities. In a limited partnership, there is at least one general partner who has unlimited liability and at least one limited partner who has limited liability and does not participate in the management of the business.

The main advantage of a partnership is that it allows you to pool resources and expertise with other people who share your vision and goals. You can also benefit from tax advantages, as partnerships are not taxed as separate entities but pass through their income and losses to the partners, who report them on their personal tax returns. Moreover, partnerships are relatively easy and inexpensive to form and maintain.

However, a partnership also has some disadvantages. You have to share profits and losses with your partners, which can cause conflicts or disagreements. You also have to trust your partners to act in the best interest of the business and not to engage in any fraudulent or unethical behavior. Furthermore , you have to deal with potential liability issues, as you can be held responsible for the actions or debts of your partners.

3. Limited Liability Company (LLC)

A limited liability company (LLC) is a hybrid legal business structure that combines some features of a corporation and some features of a partnership. An LLC is a separate legal entity that can own assets, incur debts, sue or be sued, and enter into contracts . However, unlike a corporation, an LLC does not issue shares or have shareholders. Instead, it has members who own a percentage of the business and can manage it directly or appoint managers to do so.

The main advantage of an LLC is that it provides limited liability protection to its members, which means that they are not personally liable for the debts or liabilities of the business. They only risk losing their investment in the business, but not their personal assets. Another advantage of an LLC is that it offers flexibility in taxation, as it can choose to be taxed as a sole proprietorship, a partnership, or a corporation depending on its needs and preferences.

However, an LLC also has some disadvantages. It can be more complex and costly to form and maintain than a sole proprietorship or a partnership. It may also have difficulty raising funds from investors or lenders, as it does not have shares or shareholders to offer as collateral or equity. Additionally, it may have to comply with different regulations and reporting requirements depending on the state where it operates.

4. Corporation

A corporation is the most formal and complex legal business structure for startups. It is a separate legal entity that can own assets, incur debts, sue or be sued, and enter into contracts. It also has shareholders who own shares of the business and elect directors who appoint officers who manage the day-to-day operations of the business.

The main advantage of a corporation is that it provides limited liability protection to its shareholders, which means that they are not personally liable for the debts or liabilities of the business. They only risk losing their investment in the business, but not their personal assets. Another advantage of a corporation is that it can raise funds from investors or lenders by issuing shares or bonds. Moreover, it can benefit from tax deductions and credits that are available to corporations.

However, a corporation also has some disadvantages. It can be very expensive and time-consuming to form and maintain than other legal business structures. It has to comply with strict regulations and reporting requirements at the federal, state, and local levels. It also has to pay corporate taxes on its income, which can be double-taxed if it distributes dividends to its shareholders, who have to pay personal taxes on them.

5. S Corporation

An S corporation is a special type of corporation that elects to be taxed as a pass-through entity, similar to a partnership or an LLC. This means that it does not pay corporate taxes on its income, but passes through its income and losses to its shareholders, who report them on their personal tax returns. However, unlike a partnership or an LLC, an S corporation still provides limited liability protection to its shareholders.

The main advantage of an S corporation is that it avoids double taxation, as it does not pay corporate taxes on its income and only pays personal taxes on its dividends. Another advantage of an S corporation is that it can benefit from some tax deductions and credits that are available to corporations.

However, an S corporation also has some disadvantages. It can be more complex and costly to form and maintain than other legal business structures. It has to comply with strict regulations and reporting requirements at the federal, state, and local levels. It also has to meet certain eligibility criteria, such as having no more than 100 shareholders, having only one class of stock, and having only U.S. citizens or residents as shareholders.

6. C Corporation

A C corporation is the most common type of corporation and the default option for startups that do not elect to be taxed as an S corporation. A C corporation is a separate legal entity that can own assets, incur debts, sue or be sued, and enter into contracts. It also has shareholders who own shares of the business and elect directors who appoint officers who manage the day-to-day operations of the business.

The main advantage of a C corporation is that it can raise funds from investors or lenders by issuing shares or bonds. It can also benefit from tax deductions and credits that are available to corporations. Moreover, it can retain earnings and reinvest them in the business without paying taxes on them.

However, a C corporation also has some disadvantages. It can be very expensive and time-consuming to form and maintain than other legal business structures. It has to comply with strict regulations and reporting requirements at the federal, state, and local levels. It also has to pay corporate taxes on its income, which can be double-taxed if it distributes dividends to its shareholders , who have to pay personal taxes on them.

7. B Corporation

A B corporation is a special type of corporation that voluntarily meets high standards of social and environmental performance, accountability, and transparency. A B corporation is not a separate legal business structure, but rather a certification that can be obtained by any type of corporation that meets the criteria set by B Lab, a nonprofit organization that evaluates and verifies B corporations.

The main advantage of a B corporation is that it demonstrates its commitment to creating positive social and environmental impact through its business activities. It can also attract customers, employees, investors, and partners who share its values and mission. Furthermore, it can benefit from some legal protections and tax incentives that are available to B corporations in some states.

However, a B corporation also has some disadvantages. It can be challenging and costly to obtain and maintain the certification, as it requires meeting rigorous standards and undergoing regular audits by B Lab. It may also face trade-offs between maximizing profits and pursuing social and environmental goals. Additionally, it may have difficulty raising funds from investors or lenders who are not familiar with or supportive of the B corporation model.

Choosing the right legal business structure for your startup is a crucial decision that will have long-term implications for your business success. There are different types of legal business structures, each with its own pros and cons. You should consider factors such as liability protection, taxation, funding options, management control, regulatory compliance, and social impact when deciding which one is best for your startup . How Legal Structures Affect the Global Demand for Businesses

One of the factors that influences the global demand for businesses is the legal structure that they adopt. The legal structure of a business determines how it is organized, taxed, and liable. There are different types of legal structures , such as sole proprietorship, partnership, LLC, corporation, and B Corp. Each type has its own advantages and disadvantages, depending on the goals and needs of the business owners.

Some examples of businesses with different legal structures are eBay (sole proprietorship turned corporation), HP (partnership), Chrysler (LLC), Anheuser-Busch (LLC), and XYZ (B Corp) . A sole proprietorship is the simplest and most common type of business structure, where the owner is the business and can operate under their own name or a DBA. A partnership is a form of business structure that comprises two or more owners who share profits and losses. An LLC is a hybrid structure that combines the features of a corporation and a partnership, providing limited liability protection to its owners. A corporation is a separate legal entity from its owners , who are shareholders, and can raise capital by issuing shares. A B Corp is a type of corporation that meets certain social and environmental standards and commits to creating positive impact for all stakeholders.

The choice of legal structure can affect the global demand for businesses in various ways. For example, some legal structures may offer more flexibility, simplicity, or tax benefits than others, which can attract more customers, investors, or partners. Some legal structures may also enable businesses to operate in multiple countries or regions more easily, expanding their market reach and potential revenue. Additionally, some legal structures may align better with the values and expectations of certain customers or stakeholders, enhancing their reputation and loyalty .

The Future Trends of Legal Structures for Businesses

As the world becomes more interconnected and complex, businesses may need to adapt their legal structures to cope with the changing environment and demands . Some of the future trends that may influence the choice of legal structure for businesses are:

– The rise of social entrepreneurship and impact investing: More businesses may opt for legal structures that reflect their social and environmental missions, such as B Corps, social enterprises, or cooperatives. These legal structures can help businesses demonstrate their commitment to creating positive impact for all stakeholders, as well as access funding from impact investors who seek both financial and social returns. – The growth of digital platforms and networks: More businesses may leverage digital platforms and networks to offer their products or services online, reaching customers across borders and time zones. These businesses may benefit from legal structures that allow them to operate in multiple jurisdictions with minimal complexity or compliance costs, such as LLCs or corporations. – The emergence of new technologies and innovations: More businesses may adopt new technologies and innovations to enhance their efficiency, productivity, or competitiveness. These businesses may need legal structures that support their innovation activities, such as protecting their intellectual property rights, facilitating research and development collaborations, or attracting talent and capital.

References:

https://www.bizfile.gov.sg/mybizfile/prod/pop_up/Comparison_Chart.pdf

https://www.wto.org/english/thewto_e/acc_e/rus_e/wtaccrus58_leg_360.pdf

https://web.archive.org/web/20110910175646/http://www.bizfile.gov.sg/mybizfile/prod/pop_up/Comparison_Chart.pdf

https://corporatefinanceinstitute.com/resources/management/business-structure/ https://www.klgnylaw.com/business-legal-structure https://uk.indeed.com/career-advice/career-development/what-are-business-legal-structure

https://www.sba.gov/business-guide/launch-your-business/choose-business-structure https://www.nolo.com/legal-encyclopedia/business-structures https://www.investopedia.com/terms/b/business-structure.asp https://www.bcorporation.net/

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• Legal Structure of a Business
• LawDistrict ❯
• Legal Dictionary
• What Is a Legal Structure?

A legal structure is an organizational framework for how a business entity operates . Also called a business structure, a business form, or a business ownership structure, the proper legal structure depends on the size and type of your business and your business goals.

Typical business legal structures include sole proprietorships , limited liability companies ( LLCs ), partnerships (such as LLPs ), and corporations .

• How Do I Choose the Right Legal Structure?

Different legal structures come with distinct advantages and disadvantages. In most cases, the criteria you will evaluate to select the right format involve the following:

• owner liability
• expenses and procedures needed to create and run the business structure
• how the business will be taxed
• investment needs

Owner liability : The more risk involved with the service or product your business provides, the more important owner liability becomes.

Both corporations and LLCs offer business owners some personal liability protection against someone making claims against the business. In fact, this protection is one of the main benefits of an LLC. Conversely, owners of partnerships and sole proprietorships have little personal protection.

Expenses and procedures : Sole proprietorships and partnerships do not require much in the way of fees and documents to start a business . Partnerships do need to create a partnership agreement that specifies who does what in the company.

However, you must file articles of incorporation with your secretary of state's office and pay associated fees to establish a corporation or an LLC. Required fees and forms, such as an LLC operating agreement , vary from state to state.

In addition, the owners of businesses with these two business structures must elect officers to elect to run the company and maintain detailed records of any critical business decisions.

Taxes: The business structure you choose also affects your income tax status . Sole proprietorships, partnerships, and LLCs are "pass-through" tax entities, meaning the taxes on business profits and losses "pass through" to the owners on their personal income taxes. However, these owners must file taxes on all net profits from their business, even if they take no money out of the company during the tax year.

Unlike the "pass-through" structures, corporations are considered separate tax entities. These business owners pay taxes only on the profits they actually take from the business in the form of salaries, dividends, or bonuses. Also, the corporation pays taxes at a lower tax rate than some individuals do.

Investment needs: If your business relies on investors, then a corporation may be the right business structure. Structuring as a corporation allows a company to sell shares of ownership through stock offerings. The previous business structures cannot offer stock.

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FAQs About Business Structures

What about llc vs. sole proprietorship.

Deciding between an LLC and a sole proprietorship is a difficult choice when it comes to legal structure . Many entrepreneurs launch their businesses as sole proprietorships because they are easy and inexpensive to set up and maintain. All profits and losses "pass through" to the owner's personal tax return, and the owner does not need to pay business taxes.

However, a sole proprietorship is not considered a separate legal entity. Therefore, the owner has unlimited liability protection and can be held personally liable for the obligations of the business.

As their businesses grow, many sole proprietors restructure their businesses as LLCs , which offer the pass-through tax advantage and limited liability protection.

Is a business plan essential?

A well-thought-out business plan serves as a guide for launching and managing your business and choosing its legal structure . When you go through the steps of how to write a business plan , you'll be able to see more clearly what legal structure you'll need for your endeavor.

Traditional business plans use a standard structure and offer details on each aspect of the business. A lean startup business plan uses the same structure but summarizes the key elements.

Depending on your type of business and the structure you choose, you may need to apply for a business registration number . You will use this number to file taxes, open up a bank account, and conduct other official business.

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How to Draft a Law Firm Business Plan

Law firms are something more than a business. Law firms and the lawyers within them are engaged in a profession, with obligations that go beyond purely commercial concerns.

Listen to this article:   Click here to play this audio clip

This truth can obscure the need for lawyers to pay attention to the business management side of their practices: their finances, marketing plans, business development efforts, IT purchases, lease terms and capital needs. For the highly trained lawyer, such concerns may feel at best like an afterthought, or at worst a nuisance that steals time from their true occupation: the “practice of law.”

And yet, those annoying business details are responsible for keeping the lights on. While law firms may be more than a business, there is, in fact, a large and necessary business element to them. For solo practices and small firms in particular, investing time into the business management side of legal practice can make a major difference in the financial rewards they derive from it—or even their survival. Firms that have failed to do so in the past (and even those that haven’t) can get a handle on their law practice business management by taking the step of drafting a business plan.

THE POINT OF A BUSINESS PLAN

We’ll discuss the components of a business plan in a moment, but first, let’s talk about why this exercise is valuable. For another type of business, a business plan may be useful in attracting investors or securing financing. Law firms should not think of their business plans as utilitarian documents in that sense (although someday one could prove helpful in obtaining a line of credit, say, or attracting lateral partners). Instead, the primary value of the business plan, particularly for the solo practice or small firm drafting one for the first time, lies in the fact that it forces the firm to think about business issues that it otherwise would not have considered.

As the D.C. Bar says in its advice to startup law offices : “The act of planning helps you think things through thoroughly, study and research if you are not sure of the facts, and look at your ideas critically. It takes time now, but avoids costly, perhaps disastrous, mistakes later.”

Of course, a business plan does little for anyone if it is quickly forgotten. But the mere act of generating a business plan gives a firm a direction to head in and goals to point toward. If the firm makes it a practice to revisit the business plan on an annual basis (if not more regularly), its business considerations will stay top-of-mind and the firm will continually refine them in ways that improve its performance.

THE CONTENTS OF A BUSINESS PLAN

Creating a strong business plan will require an investment of time and energy. At the same time, no one wants to write, or read, a massive document. To improve the chances that the project gets done, and gets read, it is best to keep a business plan to a reasonable length. Anything over 20 pages may stretch attention spans to the breaking point, and there’s no harm in going shorter if you have covered all the territory you need to by that point.

So, what, exactly, is the territory that you should cover? Most authorities agree that a sound business plan for a law firm should address the following broad areas:

• Overview of the Firm

This section should include basic information about the firm: its name, legal structure, practice areas and leadership positions. It should also contain some deeper information about the firm's identity and aspirations.

This would include:

A mission statement about the firm’s purpose

A vision statement or recitation of medium- and long-term goals for the firm

Important aspects of the firm’s history

Any important philosophies that the firm brings to legal practice

• Market Analysis

This section should discuss the business trends affecting the firm’s important practice areas and clients. It should evaluate any technologies that are affecting your practice area and consider how the firm may leverage or keep up with them. This section should also devote substantial energy to identifying the firm’s major competitors in each of its important practice areas and comparing their services to the firm’s.

In this section, identify the firm’s major clients, breaking them down by important characteristics like size, location, industry and practice groups used. Go through a similar exercise for major client prospects and targets. It’s worth examining how the firm can improve its relationships with both of these groups.

Important financial information includes the firm’s fixed and variable costs, backward- and forward-looking revenue, realization rate, collection rate, monthly overhead, assets and liabilities. A 12-month profit and loss projection should be included and could be considered the heart of the business plan.

There is a great amount of detail that any firm could get into on this front. Don’t get overwhelmed by it; at the same time, this is some of the most important information in the business plan, so it’s not advisable to gloss over it.

This section will address key operational issues like the office lease, equipment purchases and technology plans. You may assign roles to various staff members for operational issues.

Think about what marketing the firm currently performs, how it obtains clients and what marketing goals it wants to set for the future.

After completing these and any other sections the firm might want to address, then go back and draft an executive summary to be included at the beginning of the business plan document. The summary should be professional, but don’t be afraid to give it some optimistic energy. After all, with your eyes on the business management fundamentals of your firm, things should be looking up for the future.

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Legal Structure Of A Business Plan Example 10 min read

When starting a business, you will need to create a business plan. This document will outline your business goals, strategies, and how you plan to achieve them. Part of your business plan will be the legal structure of your business. There are several different types of legal structures, and each has its own benefits and drawbacks. Here is a brief overview of the four most common legal structures for businesses.

Sole Proprietorship

A sole proprietorship is the simplest type of business structure. It is owned and operated by one person and there is no legal distinction between the owner and the business. This is the most common type of business structure in the United States. The primary benefit of a sole proprietorship is that it is easy and inexpensive to set up. The owner is also responsible for all debts and liabilities of the business.

Partnership

A partnership is a business structure owned and operated by two or more people. Partnerships are similar to sole proprietorships, but have the added benefit of shared liability. This means that if one partner incurs debts or liabilities, the other partners are also responsible. Partnerships are also less expensive to set up than corporations.

Corporation

A corporation is a legal entity that is separate and distinct from its owners. This means that the corporation can own property, sue and be sued, and enter into contracts. The primary benefit of a corporation is that it offers liability protection to its owners. This means that if the corporation incurs debts or liabilities, the owners are not responsible. Corporations are also more expensive to set up than sole proprietorships or partnerships.

Limited Liability Company (LLC)

A limited liability company is a hybrid business structure that combines the benefits of a corporation and a partnership. LLCs offer liability protection to their owners and are less expensive to set up than corporations.

Table of Contents

What is the legal structure of a business plan?

When starting a business, one of the first steps is creating a business plan. This document outlines the goals and strategies of a business, and is essential for obtaining funding and attracting investors. There are a variety of legal structures you can choose for your business plan, each with its own advantages and disadvantages.

The most common legal structures for businesses are sole proprietorships, partnerships, and corporations. A sole proprietorship is the simplest business structure, and is owned and operated by a single individual. There are no formal registration or filing requirements, and the owner is responsible for all liabilities incurred by the business. A partnership is a business structure owned by two or more people. Like a sole proprietorship, there are no registration or filing requirements, and the partners are responsible for all liabilities incurred by the business.

A corporation is a more complex business structure, and is owned by shareholders. The corporation is a separate legal entity, and is responsible for its own liabilities. The shareholders are not personally liable for the debts of the corporation. In order to form a corporation, you must file articles of incorporation with your state government.

There are a number of other business structures you can choose, including limited liability companies (LLCs) and S corporations. LLCs are hybrids between a corporation and a partnership, and offer the limited liability of a corporation while preserving the pass-through taxation of a partnership. S corporations are similar to LLCs, but are subject to additional restrictions and are only available to certain types of businesses.

When choosing a business structure, it’s important to consider the legal and tax implications. Each structure has its own set of rules and regulations, so be sure to consult with an attorney or accountant to determine which is the best fit for your business.

What is an example of a legal structure?

An example of a legal structure is a company. A company is a type of legal structure in which a group of people come together to form a separate entity that is recognized by law. This entity can then enter into contracts, own property, and sue and be sued. Companies are a popular choice for businesses because they offer limited liability to the owners. This means that the owners are only liable for the amount of money that they have invested in the company.

What are the 3 basic types of legal structures for businesses?

When starting a business, one of the first decisions you’ll need to make is what legal structure to use. There are three basic types of legal structures for businesses: sole proprietorship, partnership, and corporation.

Sole proprietorship is the simplest and most common type of business structure. It’s simply a business owned by one person. There are no special requirements to set up a sole proprietorship, and it’s the easiest type of business to start. The downside is that the owner is personally liable for all the debts and liabilities of the business.

Partnership is similar to a sole proprietorship, but it’s owned by two or more people. Like a sole proprietorship, there are no special requirements to set up a partnership, and it’s also the easiest type of business to start. The downside is that the partners are personally liable for all the debts and liabilities of the business.

Corporation is a more complex business structure than a sole proprietorship or partnership. It’s a legal entity separate from the owners, and it has its own legal rights and liabilities. Corporations are more expensive and difficult to set up than other business structures, but they offer some advantages, such as limited liability for the owners.

What are the six types of legal structures?

There are six types of legal structures in the United States: sole proprietorship, general partnership, limited partnership, corporation, S corporation, and limited liability company (LLC). The legal structure you choose for your business will impact your personal liability, taxes, and how easy it is to raise money.

Sole proprietorship is the simplest legal structure and is just you and your business. You are personally liable for all the debts and obligations of the business, and taxes are filed and paid on your individual income tax return.

A general partnership is also simple and just involves two or more people working together. Each partner is personally liable for the debts and obligations of the partnership, and taxes are filed and paid on each partner’s individual income tax return.

A limited partnership has one or more general partners who are personally liable for the debts and obligations of the partnership and one or more limited partners who are not liable for the debts and obligations of the partnership. Limited partners are only liable to the extent of their investment in the partnership. Taxes are filed and paid on the individual income tax returns of the general partners.

A corporation is a more complex legal structure with separate legal and financial liabilities from its owners. Corporations are required to have bylaws and hold annual meetings. Taxes are filed and paid on the corporate income tax return.

An S corporation is a special type of corporation that is taxed like a partnership. This means that the corporation’s income and losses are passed through to the shareholders and are reported on their individual income tax returns. S corporations are limited to 100 shareholders and must have a formal organizational structure.

A limited liability company (LLC) is the most recent type of business structure and provides the liability protection of a corporation with the tax treatment of a partnership. An LLC can have an unlimited number of members and does not have to have a formal organizational structure.

So, which legal structure is right for you? That depends on a number of factors, including the size of your business, your liability risk, and your tax situation. You should consult with an attorney or accountant to help you decide which structure is best for your business.

What are the five legal business structures?

There are five common legal business structures in the United States:

1. Sole proprietorship: This is the most basic and simplest business structure, in which one person owns the entire business. There is no legal distinction between the business and the owner, and the owner is liable for all business debts and obligations.

2. Partnership: A partnership is a business owned by two or more people. Partners are equally liable for business debts and obligations, and the partnership itself is not a separate legal entity.

3. Corporation: A corporation is a separate legal entity, owned by its shareholders. The shareholders are not liable for the corporation’s debts and obligations, and the corporation is taxed separately from its owners.

4. Limited liability company (LLC): An LLC is a separate legal entity, owned by its members. Members are not liable for the LLC’s debts and obligations, and the LLC is taxed separately from its members.

5. Cooperative: A cooperative is a business owned and operated by its members, who are also its customers. Cooperatives are not typically registered as a legal business structure, but they are governed by specific state and federal laws.

What is the best type of business legal structure?

There are a variety of business legal structures to choose from, each with its own benefits and drawbacks. The best type of business legal structure for your business will depend on the size and nature of your business, as well as your personal preferences.

The most common business legal structures are sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. Let’s take a closer look at each one.

Sole proprietorships are the simplest business legal structure. There is no legal separation between the business and the owner, so the owner is personally liable for any debts or legal judgments against the business. However, sole proprietorships are relatively easy and inexpensive to set up and manage.

Partnerships are similar to sole proprietorships, but involve two or more owners. Like sole proprietorships, partnerships are easy and inexpensive to set up and manage, and the owners are personally liable for the business’s debts and legal judgments.

Limited liability companies (LLCs) are a popular choice for small businesses, as they offer the limited liability of a corporation, but are much simpler and less expensive to set up and manage than a corporation. LLCs are a good choice for businesses that want the liability protection of a corporation without the complexity and cost of setting up and managing a corporation.

Corporations are the most complex and expensive business legal structure to set up and manage. However, they offer the greatest liability protection for the owners. Corporations are a good choice for businesses that want to protect their personal assets from any legal judgments against the business.

What is meant by legal structure?

The legal structure of a business is the framework that governs how it is run and how its assets are divided. It is important to get this structure right from the outset, as it can be difficult to change later on. There are a number of different legal structures to choose from, each with its own advantages and disadvantages.

The most common legal structures are sole proprietorship, partnership, limited liability company (LLC), and corporation. Sole proprietorships and partnerships are relatively easy and inexpensive to set up, but offer little in the way of protection from liability. LLCs are more expensive to set up than sole proprietorships and partnerships, but offer limited liability protection to their owners. Corporations offer the most protection from liability, but are also the most expensive and complex to set up.

It is important to choose the right legal structure for your business, as it will have a big impact on how it is run and how much liability you are exposed to. Talk to an attorney to help you decide which structure is right for you.

Published by Dean Wallace

View all posts by Dean Wallace

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