Founding a company can offer the opportunity to make important decisions about how to run it. One of these first decisions a new business owner makes is what type of the legal structure of a company will have. There are several different ways to set up your company, and each will have implications as far as taxes, financing, and your personal liability.

How To Choose the Right Legal Structure?

A legal structure is an organizational framework for how a business entity operates. The proper legal structure depends on the size and type of your business and your business goals.

Choosing the right legal structure of a company from the start is among the most crucial decisions you can make. Here are some factors to consider:

  1. Taxes: Given the different tax rates for business and personal incomes, your structure choice can significantly impact your tax burden.
  2. Liability: The more risk involved with the service or product your business provides, the more important owner liability becomes.
  3. Paperwork: Each business legal structure has unique forms. Additionally, if you structure your company as a corporation, you’ll need to submit articles of incorporation and regularly file certain government reports.
  4. Registration: the legal structure of a company is a prerequisite for registering your business in your state. You can’t apply for an employer identification number (EIN) or all your necessary licenses and permits without a business structure.
  5. Investment needs: If your business relies on investors, then a corporation may be the right business structure. Structuring as a corporation allows a company to sell shares of ownership through stock offerings. The previous business structures cannot offer stock.

Forms of the legal structure of a company

There are three key types of the legal structure of a company, with some alternative options available for special types of businesses. Here are the most common options available right now:

  1. Sole trader

A sole trader (also known as a sole proprietor or sole proprietorship) is an unincorporated business structure, and one of the simplest ways to start a business. In a sole proprietorship, one individual run and owns the entire company. They typically have full control of how the business is run and sole autonomy when it comes to building the company’s brand.

The main advantages of being a sole trader are that you maintain full control of your affairs and that there’s usually a limited amount of paperwork to do beyond your self-assessment. Accountants can also charge lower rates for sole traders since there’s less paperwork required overall, so professional consultation is cheaper.

  1. Limited company (Ltd.)

A limited company is one of the most popular business structures, as offering a range of benefits to business owners and shareholders. A limited company, commonly referred to as “Ltd,” is a type of business entity recognized by law as a separate legal entity from its owners. Entrepreneurs and businesses often opt for this structure due to its unique set of advantages and legal protections.

Owners of limited liability companies are protected from personal responsibility for business debt, which is restricted to the value of shares or guarantee given in the business.

With a limited company, finances can be easier to raise, it can be simpler to sell the company and creditors cannot seize personal assets to cover financial issues, only the assets that the company itself holds.

  1. Partnership

A partnership is a structure of two or more individuals sharing both the management, profits and taxes of a business. Each partner pays tax on their share in the partnership and these partners can be either individuals or another company, which counts as a legal person.

These can be a straightforward way of starting a business with a small group of individuals since all partners are self-employed, so paperwork and government involvement is limited. This also allows you to set the terms of agreements and the distribution of profit and responsibility flexibly and independently.

One very important thing to keep in mind is that you can change the organizational structure of your business if your situation changes. It’s possible to start off as a sole trader and convert to a limited company or partnership. As your needs grow and change, the legal structure of a company can change with them.

In light of this point, it’s best for your business success to consult with our best attorneys at “Consortio Law Form” about what would be most suitable for you.

To find more, Please Contact us Now via the phone number 002 01028806061 or send us a WhatsApp or email Info@consortiolawfirm.com.