Incorporating Your Business: Types of Legal Structures for New Companies
If you are considering incorporating your business, finding out what types of legal structures exist is a wise idea. Understanding the different kinds of legal entities will help you decide which type of entity is right for your new company. Once you have chosen the right kind of legal entity, you can then file for online incorporation with the help of an online filing service. The most popular types of legal entities are:
- Sole Proprietorship: this type of legal structure does not make any kind of legal separation between you (as a business owner) and your business. While the costs associated with arranging a sole proprietorship are low, you will be held personally responsible for any company liabilities, debts, or obligations. You could wind up losing all personal assets due to a lawsuit or bankruptcy.
- Limited Liability Partnership: each partner who is part of an LLP business has a separate legal responsibility. The advantages of this legal structure include limited liability and a one-time tax fee. The main disadvantage to this type of structuring is that all partners are still held personally liable for company liabilities, debts, or obligations.
- General Partnership: when many different people want to own a stake in an unincorporated company, this is called a “general partnership.” As with a sole proprietorship, a general partnership structure does not include any separation between the business and those individuals who own the business. The main thing to consider when thinking about a general partnership is the fact that all partners are responsible for the actions of other partners. Should your partner make a bad business decision, you are also legally responsible for that bad decision.
- C- Corporation: this type of structuring allows for a clear separation between the business and those who own the business. When a C-Corporation is formed, shareholders are not personally responsible for business transactions and company liabilities, debts, or obligations of the company. While a good option, a C-Corporation can be very expensive to maintain and might not be the most tax-efficient entity choice.
- S- Corporation: as with a C-Corporation, shareholders who have a stake in an S-Corporation are not personally liable for company liabilities, debts, or obligations. Those who are part of an S-Corporation are only taxed once, though various administrative costs apply to this type of structuring. S-Corporations are popular entity choices.
- Limited Liability Corporation (LLC): an LLC is often considered the best of both worlds, since owners of an LLC are only taxed once while not being held personally liable for any business obligations that may arise. The main disadvantage of an LLC is that this type of company is subject to high administrative, set-up, and general business costs. Certain types of owners don’t like to own an interest in LLC’s, such as a venture capital fund.
Spend time learning about which type of legal structure is right for your business. If you are unsure of the type of structuring that will work best for your company, speak with an attorney. Attorneys will be able to provide you with all the information that you need in order to properly structure your new venture.
