Hearing how many different structures exist can be daunting. It is important that you choose the proper structure for your business. This ensures that you are able to run it accordingly, that it is legally structured in a way which protects you and your partners (if applicable) to the maximum extent, and that the structure serves the best interests of your company.
Choosing what structure you need is not as hard as it may seem. In fact, it truly varies from person to person, and situation to situation. This is especially true in the circumstances of small businesses or start-ups that are intended to launch into the small business world.
In some cases, talking to an attorney may be the best strategy for you to discover what the best structure for your unique business will be. This ensures that your legal interests are covered and that you understand what the laws for your local area are. Remember, they do vary from place to place, meaning that you need to ensure that you are clear on what is applicable to you when it comes to structuring your business. This will keep you, your business, and your clients safe.
Outside of the idea of talking to an attorney to get access to the best information possible, you can also consider the following. Answering the questions below will give you an idea of where you are at in your business.
How many individuals are currently involved in running your business?
If the answer is just you, or just you and your spouse, you might want to consider running a sole proprietorship. This is one of the easiest structures to form and has the ability to give you flexibility in how you run your business. If you want to limit your personal liability, you might consider registering as a Limited Liability Company.
If the answer is you and other individuals, consider looking into starting a partnership. This will enable you all to be legally accounted for and protected in your business. Be sure to work with an attorney to get this company formation in the best structure for each of you. This will determine what type of partnership will best suit the needs of your business, and the partners involved.
If you are looking to build a business with partners and with multiple employees, you might consider starting a corporation. This allows the business to become its own entity and be supported legally in a way that mitigates any legal liability from each individual involved in running the company.
How much liability are you willing to take on?
Liability equals risk. If you are held personally liable for anything, this means you could potentially stand to lose a lot. In a situation such as a sole proprietorship, for example, you are on the line with unlimited liability. This means should anything tragic happen, you are held personally responsible and have to face any and all consequences as a result.
If you are running a company where the liability is seemingly low or you are protected, you might consider maintaining your status as a sole proprietorship. If you are a partnership, you might consider becoming limited liability partners to prevent any of you from being held responsible for the other’s mistakes. Or, you might consider becoming limited liability partners to protect you to the max against any mistakes in the business in general.
Alternatively, if you don’t want to hold any responsibility and you have enough individuals to form the structure, you might consider starting a corporation. This takes the personal liability load off everyone involved and ensures that you are all protected in the event of a tragic accident. In this circumstance, the corporation would take all of the risks and you, personally, would take none. This means that the corporation could lose everything, but you are likely going to remain safe (depending on the details of the circumstance).
What legal structure best serves your business?
Of course, you need to think about your business goals and objectives. Naturally, certain structures will serve specific goals that you may desire to achieve. For example, if you are looking to start a charity, you will likely want to register as a non-profit corporation. Alternatively, if you are starting a business on your own, you may want to start a sole proprietorship. That is unless you want to limit your risk, then you might consider a limited liability company. If you were going into business by yourself, for example, you would not want to enter into any form of partnership agreement, as it would not hold up for you.
Ensuring that you choose the structure which is going to best serve your business now and in the future is important. While you can generally amend what you initially choose, it tends to be easiest to start off in the way that is going to serve your future goals the best. That way you do not have to incur expensive legal fees later on to advance to where you desire to go.
Once you have considered these questions, you will likely have a strong idea of what legal structure will best serve your business. If not, again, going to speak with a business attorney may be your best opportunity to ensure that you are structured the proper way. It is essential that you choose the proper structure, as this will protect you and set you up for success in the future of your business.
