Among the many decisions you have to make when you start up a small business, one of them is the legal structure under which you want to operate. Each type of structure has its relative advantages, and the choice you make will have far-reaching consequences. An up-front evaluation will help you determine which structure is best for you.
Types of Legal Structures and Aspects to Evaluate
The most common legal structures for small businesses in the United States are sole proprietorships, partnerships, and corporations. In a sole proprietorship the business is owned and managed by one individual, although there can be employees. This is the most common way to start a small business. Partnerships are associations of two or more persons that decide to go into business together. They can be either general partnerships or limited partnerships. Corporations are separate legal entities, that can be closely-held, with the original owners holding all the stock, or they can be open, allowing others to purchase stock in the corporation. And certain small corporations can elect to be treated as subchapter S corporations for tax purposes.
Some of the aspects to be considered when deciding upon the legal structure for a small business are:
Requirements, complexity, and costs involved in setting up the legal structure
Ownership and control of the business
Liability for business obligations or losses
Continuity of the business and transferability of ownership