Legal Structure for your Business? This Might be Right for you

Legal Structure for your Business? This Might be Right for you

When entering a new business, whether you are a big company or a beginner in the entrepreneurial industry, there are a lot of factors and risks you need to consider including your legal structure. This requires a lot of knowledge and work to understand the deeper meaning of every type of business.

Types of business do not only recognize what business do you have but it also entails appropriate local, state, and federal laws. This includes your responsibility to the government and the public in the form of tax laws.

To have a better grasp of what I said, here are the types of business and their legal structure

Sole Proprietorship

This is the most common and simplest type of business out there. If you intend to “work” alone, you can go with this type of business. This is also the easiest type of business to form. If the business is owned only by you, you can avoid much paperwork and fast processing of the legality of the business. This only requires you to pay for license fees (to operate) and business taxes. Also, since it is easy to form, it is easy to dissolve your business with no formal paperwork required.

But on the dark side of it, it entails, too, disadvantages to your business. It entails unlimited liabilities since you single-handedly formed the business.  Meaning, all business-related expenses, and debts are your only responsibility and yours alone. It also takes a lot of risks and approvals from banking loans so it may be difficult to raise capital. And if you are thinking that investors may help you, there is no guarantee to that since they have no right and no equity to share in your business.


Legal Structure for your Business? This Might be Right for you

A business that is equally owned by two individuals. And when it comes to handling business, “two heads are better than one.” This is also the advantage of Partnership than Sole Proprietorship.

Since this is an agreement between two individuals, this requires additional paperwork and this requires a lawyer to review your agreement. The agreement must contain an equal share of profits, debts, as well as the ownership and must be under the review of a lawyer.

Just like the Sole Proprietorship, a Partnership is easy to form and requires a few paperwork to file. Business loans are also possible since loans can obtain when there are more than two debtors. There is also a different kind of tax form dedicated to this kind of business.

Having a Partnership agreement also entails its downsides. Disagreements are inevitable. In the event of a business crisis, business owners should face them together as co-owners of the business. If you wish to dissolve your business, it must be done with mutual agreement.


From a legal perspective, there are two kinds of legal entities which are natural entities, who are the people, and the artificial entities, such as corporations. A corporation is an independent entity separate from its owners. This may be more complex and complicated than the other two since it requires to comply with regulation, as a corporation, and tax requirements separated from the owners. A corporation can also sell the rights of ownership in the form of stocks.

Since a corporation is different and recognized as an artificial entity, it has its rights, such as the right to due process and equal protection of the law. Though, it does not have a right to be given free legal counsel as well as protection against self-incrimination. This also means that its owners, shareholders, and investors have limited liability over the corporation itself. Aside from that, a corporation is entitled to its tax liabilities.

Cooperative (Coops)

This type of business is common with small businesses. It is an organization of small businesses with one objective or goal to earn and make a profit. It may be good for some businesses to increase their capital through the cooperative. It’s, however, poses some risk when joining a cooperative. Your control over your business is not completely yours since your additional funding comes from the cooperative and it limits you to grow your business as you expect it to be. Prices are also controlled since businesses share the same prices over a commodity. It also has a democratic-type of management since you share a pool of assets, it should be decided by the majority.

Limited Liability Company (LLC)

It is a hybrid type of business where owners have limited liability which makes them not personally liable for the debts and liabilities of LLC. Meaning, they are not held liable for any debts the company caused as well they are not required to pay the liabilities with their own money. The LLC protects its owners while allowing the expansion and growth of the business. Taxes are also flexible with this type of business as well. This means that taxes were deducted in their income tax, thus avoiding double taxation. 

When you enter or create a business, there are a lot of factors an entrepreneur needs to consider. Flexibility is one of them. Proper distinction and evaluation are a must skill to maneuver your business to grow. You must also consider the capability of the company and yourself if you must continue to invest more in the company or dissolve it instead. Lastly, you must also operate under legal permits and regulations depending on your business setup.

Hope this article has made your ideas clearer on the legal structure of the business. Now you should hit HERE, to learn more about how to determinate the right audience to target!


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