Determining the most appropriate legal structure for a business is one of the most common dilemmas facing a start-up. The most utilized forms of legal structure include: corporations, limited liability partnerships, limited partnerships, sole proprietorships, limited liability companies or business trusts. Choosing between the forms of legal structure require investigation into the different issues that a company faces: taxation, risk and control, liability, formality. Reducing personal exposure and risk are key elements in choosing which legal structure to use. There are advantages and disadvantages to each form, and the individual should consult with a tax and/or business professional to determine which legal structure will allow the company to operate effectively.
A company that wishes to operate must form a legal entity that protects both the business and the public from various situations. While the process for forming a legal structure is mainly a paperwork transaction, careful consideration must be given to ensure that the company is properly formed. The basis for determining the legal structure must be more than simply what is the cheapest and most expedient method of opening a business. A business must facilitate discussion into the type of organization to be developed, how profits will be handled and what liability the ownership of the company is comfortable with.
The largest impact for legal structure will be felt when filing annual reports and taxes. Different legal structures will handle the taxation of the company and its officers differently, so each individual must be aware of the pros and cons before establishing the company. Legal structure gives a company protection from potential lawsuits, tax levies on personal property or liability in the case of disgruntled customers. The legal structure will also determine how the leadership of a company will be established and determine the organizational structure that a company must use to do business.