Launching new business venture is not all about investment, revenue, profit, break even point and return on investment. While all those are important, the way you structure your new business legally is critical to your business success.

Choosing the wrong legal structure will tarnish your business potential. How to decide which business legal structure that is the right one for you and your business? You might want to consider this knol on business legal structure written by Standard Legal.

Here’s the recap of the business legal structure:

Corporation

A corporation is recognized as being separate and apart from its owners (that are called “shareholders”) As a separate entity, it has its own rights, privileges, and liabilities apart from the individuals who form it.

The advantages:

• The shareholders of a corporation are generally not personally liable or responsible for the debts or obligations of the corporation.
• Many view the corporate structure as being permanent, thus adding credibility and stature to a business.
• A corporation can be the most enduring legal business structure.
• Capital can be more easily raised with a corporation.
• Corporations can offer anonymity to its owners.
• Tax Advantages - Deductible Employee Benefits.

Limited Liability Company

A limited liability company (called an “LLC”) is a legal entity that, in the eyes of the law, exists separate and apart from its owners. The owners of the LLC are called “members” (as compared to a corporation, where the owners are referred to as “shareholders”).

The advantages:

• The LLC, like a partnership, is given a pass through tax treatment.
• Many view the corporate structure as being permanent, thus adding credibility and stature to a business.
• The LLC provides liability protection for the members.
• The LLC provides flexibility in management, compared to the relatively rigid corporate structure.

Sole Proprietor

A sole proprietorship is generally owned by a single individual or by several family members. A sole proprietor maintains and retains complete control of and responsibility for the business, receives all profits, is responsible for all loss, as well as all taxes and liabilities of the business.

General Partnership

A partnership operates by an agreement (either orally or in writing) by and between two or more people acting as co-owners of a for-profit business. The partners share personal liability for all claims against the partnership and share all profits and losses.

Limited Partnership

In a limited partnership there must be at least one general partner who manages the business and who is fully and personally responsible for all claims against the partnership business. In addition, there are investors (i.e. the limited partners - known in the past as “silent” partners) who do not engage in the management of the business and whose liability for the business is limited to the extent of their investment into the business.

Like a partnership, the liabilities and distribution of profits are based upon the agreement reached by all of the partners. Limited Liability Partnership.

For a more thorough explanation on business legal structures, please visit the knol.

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