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Legal Structure of a Company

Starting a business begins by choosing legal structure for a company and the entity is important in terms of tax legal responsibility; but do you have some ideas of the legal structure of a company?

For starters in the business world it is crucial to determine the legal structure of a company and this is one of the responsibilities of the owner.

The Importance of Choosing Legal Structure for a Company

When starting a business, aside from creating a business plan, it is crucial for the owner to choose which legal structure definitely fits for the company planned to establish. This part is really hard to decide that concerns of which legal structure best describes the company and for paying the taxes entails when running a business. Bear in mind that each entity has its responsibilities and areas of concerns such as in terms of taxation, transferability, liability, expense and formality, continuity of existence, as well as risk and control. Of all the six areas of concerns, taxation is the crucial area wherein the liability is different from each entity and this will be discussed clearly as we give you the different legal structures existing today.

The business entity or the legal structure of a company is one of the requirements when filing an application to open a business to any state. By applying a legal structure, this will determine the responsibilities and liabilities of the owner even though he or she represents solely for the company or has partners and several shareholders. The type of legal structure will also ascertain the amount of paperwork required and the exact tax fees necessary for the business. Here is the list of legal structures as mandated by state laws.

List of Legal Structure of a Company

  • Sole Proprietorship

    • This is considered as the simplest but riskiest form of legal structure and the most chosen entity for small businesses. It is simplest in the sense that it requires less paperwork for the application and maintaining the business while it is the riskiest because of the reality that the sole owner shoulders all the tax liabilities entitled for the business. Being the only owner, all the decisions, losses, and earnings are all yours.

  • General Partnership

    • This legal structure is characterized by involvement of two or more persons owning the company which shares on the earnings and losses of the business. It is also easy to apply for this entity and it advisable to submit a written form of partnership agreement that contains the distribution of control and share in the business. The owners are also liable to the debts of the business, while pass-through taxation is enjoyed by the partnership.

  • Limited Partnership

    • This entity has same tax benefits as the general partnership, however, the difference is that the structure allows outside investors to take part in the business with no liabilities at all.

  • Limited Liability Partnership

    • LLP is the common legal structure suitable for professionals that formerly are not permitted to incorporate like accountants and lawyers, of which enjoys the tax benefits of general partnership but with limited liabilities to the owners like in LLC.

  • Corporation

    • If you have a large company with several stockholders, this is the best legal structure for you as it permits limited liabilities because of the separate entities of the owners. The C-Corporation and S-Corporation is among its type.

  • Limited Liability Corporation

    • LLC is said to be combination of partnership and corporation wherein the structure is taxed same as in partnership while the owners or shareholders enjoys limited liabilities like in corporation.

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