Business Organizations
Starting and growing a small business is exciting. However, running a startup is also stressful. There are countless regulations, procedures, and legal paperwork. Your business structure can determine the laws and regulations, tax liability, and legal needs. You’ll have to follow federal laws, state laws, and local business laws to keep your company in compliance.
This article provides an overview of business organizations. A business lawyer can assess the specifics of your business, identify legal issues, and help you set up a new business formation. If you need business legal advice, contact an experienced business organization lawyer.
What Are the Types of Business Structures?
As an entrepreneur, you have options when it comes to finding the right business organizational structure. These depend on the number of owners and employees, the goods or services you provide, and where you operate. You’ll generally need to claim or register a specific structure that applies to your business.
Some of the most common types of business structures include:
- Sole proprietorships
- Limited liability companies (LLCs)
- Partnerships and limited liability partnerships (LLPs)
- Corporations
- Non-profit organizations
Sole Proprietorships
A sole proprietorship is a business owned and run by just one person. You may not need to formally file or register your business, depending on state and local law. Generally, you’ll still have applicable taxes to pay related to your work. Unless you register as a different kind of entity, your enterprise is a sole proprietorship.
One of the benefits of running a sole proprietorship for small business owners is that they’re more straightforward to start. But there are risks involved. There’s no natural legal separation between you and your business. That means you can be personally liable for injuries or financial errors.
Partnerships
Partnerships are somewhat similar to sole proprietorships. They’re generally simpler than more structured organizations. Owners can also face personal liability. However, a partnership has at least two owners, which adds complexity to the business.
Some partners in a business share all costs and liability evenly. These are typically known as general partnerships. Partnerships can use a limited liability partnership (LLP) to avoid personal liability for legal claims.
Because more people own and run the business, there may be additional legal and financial elements. Partnerships should always have a contract between the partners. The agreement should specify the nature of their roles and responsibilities.
Limited Liability Companies
A limited liability company (LLC) has greater protections for business owners. An LLC separates personal assets from business assets. LLCs require more formal registrations with the government, particularly at the state level.
Taxes are usually paid through the owners’ personal tax filings and not separate filings as a business. If one member of the LLC leaves, their business interests are usually split and shared among the other members. This process should be covered in the business agreement.
Corporations
Corporations are more formalized businesses that protect owners and operators from personal liability for financial losses. There’s a much greater separation between the business and the owners in a corporation. Corporations generally pay taxes as a business. Incorporation and running a corporation can require more paperwork, regulation, and contractual considerations.
The structure of a C corporation usually includes different shareholders who have a stake in the business. There could be just a couple of shareholders or many. Shareholders can have varying levels of involvement in the business. Generally, shareholders get a vote in business decisions. However, the board of directors typically manages the business. They will be responsible for following the business’s legal guidelines and financial regulations.
A public benefit corporation (PBC) is a business entity that blends financial goals with public benefit missions. This corporate model is now available in a growing number of states. A PBC must declare specific public benefits in its charter. PBCs can maintain traditional corporate tax statuses while focusing on responsible, sustainable operations.
Non-Profit Organizations
A non-profit organization usually has a social or communal mission and doesn’t have profits. These companies can still make money. However, they operate for a collective benefit instead of an organization that benefits the owners. Churches, charities, and other public organizations are commonly non-profits.
Non-profits often rely heavily on donations. As such, they’re generally exempt from most business taxes. They have strict regulations. For example, they can only pay their members and operators under specific rules and circumstances. Non-profits can also rely on unpaid volunteer workers.
How Do I Choose the Right Business Structure?
Choosing a structure for your new business can be a hard decision. You must consider how each option may impact your income. Your decision can also determine the risks you face for business liabilities. You must file the correct paperwork once you decide on the right business. Paperwork errors could result in fines or even a total closure of your business.
Having an experienced business lawyer with you at the start will save you time and money because of the legal services and legal resources they can offer for your different business needs. This includes many business legal matters, like real estate law, employment law, and intellectual property law.