Lesson Goals:
• Learn the importance of a legal structure• Discuss four basic forms of business structures
Choosing the Best Business Structure
Choosing the Legal Structure of Your Business
• Sole Proprietorship• Partnership• Limited Liability Company• Corporation
Choosing the Best Business Structure
Questions You Should Ask
• How easy is it to set up and operate?• What are the tax advantages and
disadvantages?• What are your potential legal liabilities?• What happens to the business if you should die?• How easy will it be to liquidate the business?
Choosing the Best Business Structure
Choice based on:
Less Commonly Considered Concerns• Raising Money• Regulations – Ongoing Operation• Continuity• Flexibility• Record Keeping
Choosing the Best Business Structure
Sole ProprietorshipDefinition
A sole proprietorship is a business owned and operated by one person for profit.
Choosing the Best Business Structure
Sole ProprietorshipCharacteristics
• Easiest form of business to set up and operate• Profits are taxed only once• Unlimited legal liabilities• Business ends with death of owner• Easy to liquidate
Choosing the Best Business Structure
Formation of Sole ProprietorshipEasiest Form of Business to Set Up and Operate
• No formal process.• Obtain all necessary federal, state, and local
licenses and permits.• Register Assumed Name Certificate (if necessary).• Obtain Employer Identification Number (if
necessary).
Choosing the Best Business Structure
General PartnershipDefinition
A partnership is any two or more individuals who contribute money, labor, and skill to a business,
and who share in its profits, losses, and management.
Choosing the Best Business Structure
Limited PartnershipDefinition
A limited partnership has one or more partners who have limited liability and no rights of
management.
Choosing the Best Business Structure
Formation of General PartnershipEasy to Set Up and Operate
• No formal process required.
• Obtain Employer Identification Number.
• Obtain all necessary federal, state, and local licenses and permits.
• Register Assumed Name Certificate, if necessary.
• Partnership Agreement (optional, but highly recommended).
Choosing the Best Business Structure
Formation of Limited Partnership• File Certificate of Limited Partnership with
Secretary of State or other appropriate agency.• Name must contain the words “Limited
Partnership.”• A written partnership agreement is required.• Maintain certain records as required by state
law.
Choosing the Best Business Structure
Limited Liability CompanyDefinition
• Created by state law• Cross between a partnership and a corporation,
with mostly partnership characteristics• Tax advantages of a partnership• Limited liability of a corporation
Choosing the Best Business Structure
Limited Liability CompanyCharacteristics
• Profits are taxed once
• Limited legal liability
• Business may or may not terminate upon death or withdrawal of member, depending upon operating agreement
• Moderately easy to liquidate
• Moderately easy to set up and operate. Some formalities are required
Choosing the Best Business Structure
Formation of LLC• Acquire all the necessary licenses and permits.• File articles of organization with the Secretary of
State.• Pay filing fees.• Prepare and adopt operating agreement.• File all necessary reports with the Secretary of
State.
Choosing the Best Business Structure
CorporationDefinition
Formed under state or federal law. Legally
treated as an artificial person, distinct from the individuals who own it.
Choosing the Best Business Structure
Organization of CorporationCorporate Structure
• Shareholders own the corporation through stock ownership.
• Shareholders elect the Board of Directors• Board sets corporate policy.• Board elects corporate officers who run the day-
to-day operation.
Choosing the Best Business Structure
CorporationsCharacteristics
• The most complex form of business to set up and operate
• Profits may be subject to double taxation• Limited legal liability• Business continues after death of owner(s)• Difficult and expensive to liquidate
Choosing the Best Business Structure
Formation of CorporationMost Complex Form of Business to Set Up and Operate
• File Articles of Incorporation with the
Secretary of State.
• Pay filing and license fees.
• Prepare and adopt bylaws.
• Obtain corporate minute book, corporate seal, stock certificates, and other desired supplies.
• Follow corporate formalities.
Choosing the Best Business Structure