A business structure is a category of organization that is legally recognized in a given jurisdiction and characterized by the legal definition of that particular category. Of all the decisions you’ll make when starting a new enterprise, probably none is more far reaching than that of the legal structure you select for your company.
Not only will this decision have a direct impact on how much you pay in taxes, but it will affect the amount of paperwork your business is legally required to do, the personal liability you face from the activities of the business, and your ability to raise capital.
The most common forms of business structures are sole proprietorship, partnership, corporation, and S corporation. The more recent evolutions to these business forms are the limited liability company (LLC) and the limited liability partnership (LLP). Because each business structure comes with different tax consequences, you will want to make your selection wisely and choose the structure that most closely matches your business’s immediate and foreseeable needs.
Since the business structure you choose influences everything from day-to-day operations, to taxes, to how much of your personal assets are at risk, you should choose a business structure that gives you the right balance of legal protections and benefits. You’ll need to select a business structure before you register your business with the state. Most businesses will also need to get a federal tax ID number (aka EIN) and file for the appropriate licenses and permits.
You must select your business structure carefully. Although you can convert to a different business structure in the future, there may be restrictions based on your location. This could also result in tax consequences and unintended dissolution, among other complications. Consulting with business counselors, attorneys, and accountants in advance of your decision can prove helpful. You can catch a glimpse of what it takes to find the right business structure for your enterprise by watching the video below.
Although there are several business structures to choose from, in our course, we will focus on the most utilized in the United States, which are sole proprietorship, partnership, limited liability, and corporation. We will discuss some useful information to take into consideration when determining which business structure is right for you, like the basic risks and advantages of each.
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