How to Choose the Best Legal Structure for Your Business first step in choosing the right legal structure is to analyze your company’s goals. Consider the local, state or federal regulations. You can select the best legally-sound structure to your business by defining the goals you want to achieve. You can alter the legal framework as company expands.

To assist you in choosing the most appropriate legally-sound structure to your business we’ve compiled the most sought-after kinds of corporate entities.

Different kinds of structures for business

How to Choose the Best Legal Structure for Your Business

Sole proprietorships as well as partnerships and limited liability corporations are the most sought-after kinds of business entities. We’ll explain each legal form in greater detail.

1. Sole proprietorship

This is the most basic kind of entity for business. A sole proprietorship is a company in which one person is accountable for all liabilities and profits.

Deborah Sweeney is the CEO of MyCorporation. The entity does not provide protection or separation for personal or professional assets. If your company grows it could also be held responsible.

The costs for proprietorship differ dependent on the marketplace in which your business is located. Your initial expenses will comprise federal and state tax as well as equipment, taxes bank fees, and any professional services with which your business contracts for. These businesses include babysitters, tutors and tutors. bookkeepers , and tutors.

These are only one of the many advantages of this type of business structure.

  • Simple to set up. Sole proprietorship model is the most simple to establish. This is the best option for businesses that are solely controlled by the owner. It doesn’t require you to report to any partners or executive boards There isn’t many paperwork to fill out.
  • Cost-effective. Prices differ based on the area you live in However, generally, the only costs associated with a sole proprietorship are license fees and taxes.
  • tax deduction. You as well as your company may be eligible for tax deductions, such as the deduction to pay for medical insurance.
  • Simple way to leave. It is straightforward to create a proprietorship and it’s even easier to get rid of one. You can dissolve your company as a single owner at any time , without the need for formal documents. If you are a proprietor of an early childhood center, but decide to shut it down and close it, you simply have to cease operating it and cease advertising your services.

Here are a few examples of sole proprietorships.

The most well-known small-scale legal structures for business is the sole proprietorship. Many well-known businesses started with sole proprietorships, but eventually grew into multi-million-dollar enterprises. A few examples are:

  • eBay
  • JC Penny
  • Walmart
  • Marriott Hotels

2. Partnership

The entity may be controlled in multiple hands. There are two kinds of partnerships that are: one is called a general partnership, where the profits are split equally. The other type is one that’s a limited partnership, where the sole partner is responsible for the operation, while the other partner contributes or gets a share from the profit. A partnership may be sole proprietorship (SO) or one with limited liability, dependent on the funding structure and the structure of its liability.

Sweeney declared that this type of entity is ideal for those who want to begin the business with a spouse or family member. A partnership lets partners share the losses and profits, and make the decisions in the structure of the business. You will be accountable for your choices and those made the business partners.

A general partnership is more expensive than sole proprietorship. It’s also less costly than sole partnerships. Prices can be dependent on the expertise and location that the lawyer is located. For it to be successful the general partnership must be a win-win for all the parties.

Google provides an illustration of a company. Google is an example of a business that is similar to this. The year 1995 was the time that Larry Page and Sergey Brin founded a tiny search engine that eventually became the top search engine in the world. While they were completing their doctoral studies in Stanford University, the co-founders were able to meet and left to develop a prototype. After they had met they secured $1million of investment from investors, and Google began receiving thousands of users per each day. Google has a net worth of close to $46 billion as a result of their joint ownership of 16% of Google.

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These are just a few advantages of a alliance.

  • It is simple to set up. There is a minimum of documents required to create sole proprietorship. If you need to use a fake name (doing business under the name) then you’ll need to obtain the Certificate of Conducting Businesses as Partners and create the Articles of Partnership agreement. The fees could be high. Additionally, you will require an operating license for your business.
  • Possibility of growth. Having more than one owner increases the likely that you will be able to get an credit . If you have credit that isn’t stellar and are in need of several loans.
  • Taxation special to the partnership. General partnerships are required to submit federal tax Form1065 as well as state returns. However, they typically don’t pay tax on income. Every partner has to declare the share of earnings and losses on their own taxes. If you establish the bakery with a person you know and you structure the company in an LLC, you are co-owners. Each owner brings their individual experience and capital which can affect the share of the company and the contribution by each partner. Let’s say you invested the largest amount of money to start the company. You may be able to determine that your share of the business is greater and you’ll become an owner in the majority.
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Here are a few instances of partnership

Partnerships represent the most popular business structure, following the sole proprietorship. Here are some examples of partnerships that have proved successful:

  • Warner Brothers
  • Hewlett Packard
  • Microsoft
  • Apple
  • Ben & Jerry’s
  • Twitter

3. Limited liability company

Limited liability company (LLC) is a hybrid organization that permits shareholders, owners and partners to minimize their personal liability while benefiting from their flexibility as well as the tax advantages of partnerships. If it isn’t proven that the partners committed a crime, acted unethically or recklessly in the course of their business’s activities the LLC shields the members from personal liability.

Brian Cairns CEO of ProStrategix Consulting declared that Limited liability companies were created to provide business owners with the same protection from liability as corporations, yet permit losses and earnings to be transferred to owners via the tax return for income. LLCs may include one or more members. The profits and losses do not have to be distributed equally among members.

The state filing fee is included in the price of forming an LLC. They range between $40 and $500 based on the location you choose to file. If you are in New York, for example you’ll need to pay a $200 filing fee as well as a $9 annual fee. Additionally, you must submit a biennial report to the New York Department of State. Read our step-by-step instructions to learn how to start an LLCfor your business].

Although LLCs can be used for small companies, many large corporations choose to use this legal form of organization. Anheuser-Busch Companies is one instance for an LLC. It is among the most well-known companies on the U.S. beer market. Anheuser-Busch is headquartered at St. Louis (Missouri) is a wholly-owned company to Anheuser-Busch InBev. The multinational brewery company is located at Leuven which is located in Belgium.

Examples of LLCs

Although LLCs are most commonly used by accounting, tax as well as law companies, different kinds of businesses can form LLCs. These are some of the most well-known examples

  • Pepsi-Cola
  • Sony
  • Nike
  • Hertz Rent-a-Car
  • eBay
  • IBM

4. Corporation

A corporation is an entity that is independent of its owners under the legislation. This is an organisation with legally-enforceable rights, and is able to sue or be sued as well as possess and sell properties. Stocks are also to purchase. The costs for filing paperwork for corporations vary dependent on the state they reside in and the class they fall into. The fees for filing a corporation in New York, for example the C corporate and S corporation fees are $130. The fee for nonprofits is $75.

There are many kinds of corporations. These include S Corporations, C corporations, and B corporations. Closed corporations are also described as non-profit corporations.

  • C Corporation owned by shareholders are taxed as a separate entity. Morgan Chase & Co. is a multi-national financial services holding company as well as an institution, has been registered as a company. Numerous larger corporations like Apple Inc. and Bank of America apply for C corporate status since they are able to allow unlimited investors.
  • Scorporations are specifically designed to be used by small-sized companies that are small. They are tax-free and can be utilized as LLCs or partnerships. They also offer owners the protection of a small liability. Widgets Inc., an S-corporation that is simple to run and has employees who are subject to FICA Tax. However, any other profits distributed through the S company is exempted in FICA tax.
  • Benefit corporations are non-profit organizations with a positive impact in the our society. Body Shop is one of them. Body Shop is recognized for its involvement in environmental and social causes. The Body Shop has been granted the status of a B-corporation. It is the Body Shop advocates for lasting changes in the areas of sexual violence, human trafficking, and climate change.
  • Closed corporations are generally controlled by a small number of shareholders and are not able to provide insurance coverage for liability. They are not traded publicly. Privately-owned companies are more flexible than publically traded ones. Hobby Lobby, a closed company is a family-owned, privately-held company. Hobby Lobby stocks are not traded in a public market but instead have been allocated to family members.
  • The is a type of open companies that are able to exchange their shares on a publicly-traded exchange. Open corporations are a standard kind of company. Each corporation has its own ownership and everyone is able to invest.
  • Non-profit organizations have been established to assist others and receive tax-free status. The Salvation Army and the American Heart Association are examples of non-profit organizations. These business structures do not have a profit motive.
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This business structure offers numerous advantages:

  • Limit liability. Stockholders aren’t personally responsible for any claim against the company. They are only accountable for their own investment.
  • Continuous. Corporations are not affected by the death of their owners or sale of their shareholdings. Investors, consumers, and creditors prefer your business to continue to function for as long as possible.
  • Capital. When your company is established, it is easier to raise large sums from many investors.

This kind of business works well for companies which are more sophisticated in their development than start-ups that are based in bedrooms. If you run a shoe-related business that you have named, appointed directors, and received capital from shareholders you should incorporate. This allows the business to grow at a greater, and more profitable rate. Your business might also be able to be incorporated as an S-corporation in order to benefit from tax advantages.

Here are a few examples of companies

It’s a great option to establish your company when your company has reached the size of. You can find a myriad of corporations that are well-known for example:

  • General Motors
  • Amazon
  • Exxon Mobil
  • Domino’s Pizza
  • P. Morgan Chase

5. Cooperative

The same owners who run the cooperative (co-op) are their owners. The members of the cooperative (also known as owners of the user) profit from the services it offers. They are the ones who vote on the company’s direction and mission, as well as share profits. Cooperatives are a great option for many reasons:

  • Taxes are not as high. The cooperative differs from an LLC because it does not tax its members according to their earnings.
  • More funding. Federal grants are offered to cooperatives that can assist them in getting off the starting point.
  • Receive better service and lower prices Through increasing the size of their businesses cooperatives can receive discounts for members.

It can be complex. It is necessary to select an appropriate business name that identifies what type of cooperative it is. one of the corporations (Inc.) or a limited. The fees that are specific to the state for co-op agreements differ. For instance that in New York, the filing fee for incorporating a business is $125.

CHS Inc. is an example of cooperatives. It is an Fortune 100 company that is controlled by U.S. agriculture cooperatives. CHS is the country’s largest agricultural cooperative, reported its net profit for the fiscal year that ended on 31 August, 2019, that was $829.9 millions.

Cooperatives in the form of examples

Co-ops, in contrast to other kinds of businesses belong to the individuals who run their members. Some examples of co-ops include:

  • Land O’Lakes
  • Navy Federal Credit Union
  • Welch’s
  • REI
  • Ace Hardware

Be aware of these aspects before deciding on a company structure

It isn’t easy to determine the best structure of a business that falls within any of the categories. Think about the financial requirements of your new venture and risk tolerance as well as its potential for growth. Once you’ve established your business it isn’t easy to alter the legal structure of your company. It is important to conduct an exhaustive analysis in the beginning stages of your company’s creation.

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These are the most important decisions to consider when selecting the best legally-sound structure to your business. Your CPA should be consulted to get assistance.


What kind of legal structure is most suitable to help your business grow? To review your business plans you can look them up to determine which one best aligns with your objectives. Your company should be open to expansion and changes, and not prevent its ability to reach its maximum potential.


Sole proprietorship is the most suitable option for startups and for operations that have complex. It is simple to start your own the business, make a profit report and make payments for taxes. It isn’t easy to get financing from outside. For partnerships however, a signed agreement is required to spell the roles of each partner and to share of profit. There are various reporting requirements for LLCs and corporations that are regulated by states as well as the federal government.


Since a company has been established as an organization, it is subject to the least individual liability. Customers and creditors may sue the business but they cannot access the personal assets of the officers or directors. An LLC has the same protections but also enjoys the tax benefits of sole proprietorship. As per their agreements with partners, they are responsible for each other’s actions.


The proprietor of an LLC is accountable for taxation as sole owner. Profits are treated as personal income and taxed in accordance with the year’s conclusion.’s principal marketing specialist Jennifer Friedman stated, “As a small-business owner, you want avoid double taxation in your early stages.” The LLC structure allows you to keep this from happening and also ensures that you’re not taxed as a businessperson and also as business.

Partners in partnership can be able to claim their shares of the profits as their personal earnings. To minimize the impact on your tax return your accountant could recommend biannual or quarterly advance payment.

Every year, a company prepares tax returns and pays taxes on its profits following expenses. The corporation is responsible for taxes on your own in the event that you get money from the company. That is the case for Social Security and Medicare. Read our reviews of the top payroll companies. []


A LLC or sole proprietorship may be the best option for you if you want to exercise primary or sole control over your business’ operations. This control could also be discussed in the partnership agreement.

A company is created to have a Board that decides on the most important issues and steers the company. Although a individual may have the ability to manage the corporation from its very beginning and throughout its lifespan it is more crucial to be managed by the board of directors as it develops. Even for small businesses those same rules apply to larger corporations like taking notes on any decision that could have any impact for the business remain in place.

Capital investment

A corporate entity is the best option when you’re looking for external funding. It is much easier to secure outside funding for sole proprietorships versus corporations.

Corporations are able to sell shares of stock and also get funding to expand, whereas sole proprietors are not able to access funds via the accounts of their own personal. They are able to only make use of credit cards or accept partners. While an LLC might face similar issues but the owner doesn’t have to use personal assets or credit card.

Licenses, permits and other regulations

You might also require permits or licenses to run your business along with the registration for your legal company. It depends on the type of business and the activities of your company the licensing requirements could be at the state, local as well as federal levels.

Friedman said that states have distinct requirements for different types of business structures. “Depending on the area you intend to set up, you may have various requirements for municipal entities. When choosing your business structure, take into account the type of business and the state in which you operate. There is no universal solution. Some companies may not be aware of the possibilities are.

The structures listed are available to non-profit organizations. Friedman recommends consulting with a lawyer for business If you’re still uncertain about which structure is the best one for your company.

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