LEGAL STRUCTURE AND DOCUMENTS

Legal structures shape your journey as a business, and choosing the best structure for your
company requires time and consideration. There are many types of business entities, each with
its own importance .choice of it can greatly affect the way you run your business, impacting
everything from liability and taxes to control over the company.

The key is to figure out which structure gives your business the most benefits to help you
achieve your company or firm and personal financial goals.

Following are the types of legal structures

 Sole proprietorship
 Partnership
 Limited partnership
 Limited liability Company (LLC)
 Corporation (for-profit)
 Nonprofit corporation (not-for-profit), and
 Cooperative

1. Sole proprietorship
This is the simplest form of business entity. With sole proprietorship, one person is responsible
for all of a company's profits and debts.

"If want to be a owner and run a business from home without a office, a sole proprietorship
allows you to be in complete control

"This entity does not offer the separation or protection of personal and professional assets,
which could prove to become an issue later on as your business grows and more aspects hold
you liable."(Deborah Sweeney, CEO)

2. Partnership
This structure is owned by two or more individuals.

There are two types of partnership

 General partnership :where all is shared equally

 Limited partnerships: where only one partner control the whole setup, while the other
person or persons simply contribute to and receive only part of the profit.
 Partnerships carry a dual status as a sole proprietorship or limited liability partnership
(LLP), depending on the entity's funding and liability structure.

This entity is ideal for anyone who wants to go into business with a family member, friend or
business partner, like running a restaurant or agency together.

This partnership allows sharing their loos and profits with partner and taking decision with help
of each other.

3. Limited liability company (LLC)

A limited liability company 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 debts of the business, as
long as it cannot be proven that they have acted in an illegal, unethical or irresponsible manner
in carrying out the activities of the business.

4. Corporation

The law regards a corporation as an entity separate from its owners. It has its own legal rights,
independent of its owners – it can sue, be sued, own and sell property, and sell the rights of
ownership in the form of stocks.

There are several types of corporations,

C corporations: C corporations, owned by shareholders, are taxed as separate entities.

S corporations: S corporations avoid this double taxation, much like partnerships or LLCs.
Owners also have limited liability protection.

B corporations:B corporations, otherwise known as benefit corporations, are for-profit entities

structured to make a positive impact on society.

Closed corporations : Closed corporations, typically run by a few shareholders, are not publicly
traded and benefit from limited liability protection.

Nonprofit corporations: Nonprofit corporations exist to help others in some way and are
rewarded by tax exemption.

Factors to consider
For new businesses that could fall into two or more of these categories, it is not always easy to
decide which one to choose. You need to consider your startup's financial needs, risk and ability
to grow. It can be difficult to switch your legal structure after you have registered your business,
so choosing correctly at the start is crucial

Flexibility

You will want to ask yourself where your company is headed, and if your structure allows for it.
Turn to your business plan to align your goals with the proper structure. Your entity should
support the possibility for growth and change, not hold it back from its potential.

Complexity

When it comes to startup and operational complexity, there is nothing simpler than a sole
partnership. You simply register your name, start doing business, report the profits and pay
taxes on it as personal income. However, it can be difficult to procure outside funding.
Partnerships, on the other hand, require a signed agreement to define roles and percentages of
profits. Corporations and LLCs have various reporting requirements with the state and federal
governments.

Capital investment

If you need to obtain outside funding sources, like investor or venture capital and bank loans,
you may be better off establishing a corporation, which has an easier time obtaining outside
funding than does a sole proprietorship.

Corporations can sell shares of stock, securing additional funding for growth, while sole
proprietors can only obtain funds through their personal accounts, using their personal credit
or taking on partners.

An LLC can face similar struggles, although, as its own entity, it is not always necessary for the
owner to use their personal credit or assets