What Is the Legal Structure of an Organization
The most common types of businesses include sole proprietorships, partnerships, limited liability companies, corporations and cooperatives. Here you will find more information about each type of legal structure. One of the first decisions you need to make when starting a business is determining the right legal structure for your business. Unlike sole proprietors and partnerships, corporations are taxed as separate entities with corporate income tax rates. The IRS taxes corporate owners at individual tax rates. There are two common types of business structures: sub-chapters C and S. The differences between the two sub-chapters result from different tax rules. Ordinary companies are considered to be subchapter C companies. However, a sole proprietorship is not considered a separate legal entity. Therefore, the owner enjoys unlimited liability protection and can be held personally liable for the company`s obligations.
An LLC is a mix of a business and a partnership and is quickly becoming the most popular structure for small businesses because of its flexibility. Its cost of creation and maintenance is low, while offering most of the benefits of a business. The ownership percentages, profit and loss distributions and voting rights of each member are determined by the articles of association of LLC, not by the ownership of the shares. In addition, business owners with these two business structures must elect senior executives who run the business and keep detailed records of all critical business decisions. Tip: Important factors to consider before liability, tax structure and industry regulations. By creating a list of specific attributes about your company and its founders, you can choose the business structure that`s right for you. Liability: A corporation is an “immortal” legal entity, meaning it does not end with the death of the shareholder. The shareholders of the company have limited liability because they are not personally liable for the debts and obligations of the company. Shareholders cannot lose more money than the amount they have invested in the company.
Like the provisions of an LLC, shareholders must be careful not to “penetrate the corporate veil.” Personal checking accounts should not be used for business purposes and the company name should always be used when interacting with customers. To better adapt to the rapidly changing environments outside and inside organizations, organizations rely on different work structures. New paradigm in managing self-managed and self-managed work teams “This unit is ideal for anyone who wants to start a business with a family member, friend or associate, such as running a restaurant or agency together,” Sweeney said. “A partnership allows partners to share profits and losses and make decisions together within the company structure. Remember that you will be held accountable for the decisions made, as well as the actions of your business partner. Choosing the right legal form for your business starts with analyzing your company`s goals and considering local, state, and federal laws. By defining your goals, you can choose the legal structure that best fits your company`s culture. As your business grows, you can change your legal structure to meet the new needs of your business. A limited liability company (LLC) is a hybrid structure that allows owners, partners or shareholders to limit their personal liabilities while enjoying the tax and flexibility benefits of a partnership. Under an LLC, members are protected from personal liability for the company`s debts unless it can be proven that they acted illegally, unethically, or irresponsibly in carrying out the corporation`s business. This is called a matrix because it is essentially a grid with rows and columns. The different rows represent different management functions and the columns represent different products.
In this structure, highly qualified employees in each management function are distributed among different product lines. Thus, each person reports to a functional manager and a product manager. Where is your business going and what kind of legal form allows for the growth you envision? Contact your business plan to review your goals and see which structure best fits those goals.