How to Choose Which Type of Legal Structure is Right for Your Business

            For every newbie entrepreneur, there are loads of questions that require answers and a lot of things that need urgent attention. One such would be the legal structure which your business would take. It is essential for you to be able to guard your personal and private assets away from your company and allow your business to flourish in compliance with governing laws. There are a variety of legal structures that any business can adopt, for the sake of clarity we would explain some of these structures briefly before deciding how to pick which type of business would be ideal for your business. 

            1.    Sole Proprietorship: Sole proprietorship is pretty straight forward. In this type of legal structure, you represent the business, and there is little separating you from the company.

            2.    Partnerships: A partnership is the coming together of two or more people to share the responsibility of running the business. Partners share profits and liability that result from the business.

            3.    Corporations: these are recommended for established businesses and are typically composed of several parties coming together. It requires more paperwork, type, and money to set up. It is usually viewed as a separate entity standing on its own.

            4.    S Corporations: one of the main drawbacks of C Corporation is the issue of double taxation because the company pays taxes on dual fronts that is the shareholders and the private individuals. S Corporations can avoid this scenario and still retain the advantages of C Corporations.

            5.    The last on the list are Limited Liability companies – LLC, LLCs protect you from double taxation and liability while operating a dual kind of partnership. The downside of an LLC is that it has to be dissolved if a member passes away.

            Now that we have been able to touch on the business structures that exist, it is time for us to know how to choose the best option available to us. You should also have it at the back of your mind that you can change structure has your business grows. Below is a list of factors that you should strongly consider when choosing the type of legal structure that is right for your business.

            1.    Financial Requirements: this is the first and most important because before deciding on the legal structure you want for your business, you, first of all, have to know if you can afford it.

            2.    Long term Projections: Long term strategy is key to deciding the path you want your business to follow, and it is essential you have this at the back of your mind when deciding on the legal structure you want to adopt for your business. 

            3.    Level of flexibility: your legal structure should be flexible enough to accommodate changes to your business.

            4.    Tax Options: like we have pointed out briefly, the tax structure that accompanies legal structures are different, and as such, you need to be conversant with the structure that best fits your business needs.

            5.    Liability: minimizing risk is one of the primary reasons why businesses choose to adopt incorporations. If you intend to run a high-risk activity, then it would be strongly recommended that you do such.