Business Legal Structure: A Quick Rundown
Brad Smith • October 25, 2019
If you’re starting a business, it’s important to know what type of entity you want your business to be. That’s because the structure of your new business has ramifications on your taxes, legal protections, and benefits.
In this post, we’ll look at the most common types of businesses so you can determine which business legal structure is right for you.
Sole Proprietorship
As a sole proprietor, you have complete control of your business.
Sole proprietorships are easy and inexpensive to form, generally requiring only registration within your county. Proprietors take in all the profits.
Some of the disadvantages of sole proprietorships are that the business owners assume all liability, meaning personal assets are at risk.
General Partnership
Like sole proprietorship, a partnership is the simplest way to start a business with two or more people. Partnerships are also inexpensive to organize, and each partner’s complementary skills may contribute to the business.
Partners share profits in a partnership, and partners have less control since decisions must be agreed upon by each partner. Partners also share liability for each of the other partners.
Both Illinois and Missouri have two other kinds of partnerships - limited partnerships and limited liability partnerships.
Limited partnerships means one partner has unlimited liability, while each of the other partners have limited liability.
Limited liability partnerships differ from limited partnerships in that they give limited liability to every partner.
Limited Liability Company
An LLC is not a corporation, but it provides benefits of both a corporation and a partnership. Owners assume limited liability, protecting your personal assets. This type of business structure is suitable to nearly any type of business with the exception of banking and insurance.
Each state regulates LLCs differently—here’s how they are regulated in Illinois and Missouri.
C Corporation
A C corporation is the most complex form of organization because it is a distinct legal entity separate from its owners. Corporations require many more administrative duties, reporting, and record-keeping than other structures. Stock may be sold to raise capital.
Unlike the other structures, corporations must pay taxes on their profits and may even need to pay taxes when dividends are paid to shareholders.
S Corporation
S corps differ from C corps in that S corps can avoid double taxation that plagues corporations. In addition to registering the S corp with the state, S corps must also file and be approved by the IRS. S corps face criteria not required by C corporations.
Further Reading
To find out more about the different types of business entities, please consult the following sites:
- Choosing A Business Structure (Southern Illinois University Small Business Development Center)
- Choose a Business Structure (Small Business Administration)
- Business Structures (Internal Revenue Service)
If you are looking for help with starting your own business, please contact us today.
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