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How to Choose the Best Legal Structure for Your Business 2022 The first step in choosing the right legal structure is to analyze your company’s goals. The next step is to consider the local, state or federal legislation. It is possible to choose the appropriate lawful structure for your business by defining your objectives. You are able to alter to your current legal arrangement as company expands.

to help you select the best legally-sound structure to your business We’ve compiled the most popular kinds of corporate entities.

Different kinds of corporate structures

How to Choose the Best Legal Structure for Your Business 2022

Sole proprietorships, partnerships , and Limited liability corporations are among the most commonly used types of business entity. We’ll go over each kind of legal structure thoroughly.

1. Sole proprietorship

It is the most basic kind of company entity. The sole proprietorship can be described as a type of business that has one owner who is accountable for any and all liabilities and profits.

Deborah Sweeney is the CEO of MyCorporation. The company doesn’t provide separation or protection of personal or professional assets. If your business expands it could also be held responsible.

Costs for proprietorship are contingent on the location in which your business is located. The initial costs will include federal and state taxes and equipment, tax bank charges and professional services with which your business contract for. These companies include babysitters, tutors, bookkeepers and tutors.

These are only one of the many benefits that come with this type of business structure.

  • Simple set-up. The sole proprietorship model is the most simple to establish. This type of structure is ideal for businesses that are solely controlled by the owner. There is no obligation to report to any boards of directors or partners There isn’t any paperwork to be filled out.
  • Cost-effective. Prices differ based the location you reside in however, the most common costs associated with a sole proprietorship include taxes and license fees.
  • Tax deduction. Your business and you may be eligible for tax deductions like an exemption to pay for medical insurance.
  • Simple exit. It is straightforward to create an LLC and it’s much easier to dissolve one. You can dissolve your business as a sole proprietor anytime without the requirement for formal papers. If you operate an early childhood center, but decide to shut it down and end the operation and cease advertising your services.

Here are a few examples of sole proprietorships that are solely owned.

The most well-known legal structures for small-scale businesses is the sole proprietorship. Numerous well-known businesses started as sole proprietorships and eventually grew into multi-million-dollar enterprises. Some examples are:

  • eBay
  • JC Penny
  • Walmart
  • Marriott Hotels

2. Partnership

The company may be controlled by multiple people. There are two kinds of partnerships which are: one is a common partnership in which profits are equally shared and the other type is a limited partnership , where one partner has control over the operation and the other partner contributes to or shares a percentage part of profits. Partnerships can be sole proprietorship (SO) or one with limited liability, dependent on the funding structure and the structure of its liability.

Sweeney said that this type of entity is ideal for those looking to establish a business with a spouse or family member. Partnerships allow partners to share in gains and losses as well as make decisions within the structure of the business. You are accountable for your actions as well as those of the business partners.

A general partnership is more expensive than sole proprietorship. It’s also less costly than sole partnerships. Prices will be influenced by the expertise and location that the lawyer is located. For a successful partnership general partnerships must be a win-win situation for both partners.

Google serves as an illustration of this type of business. Google is an example of a company like this. The year 1995 was the time that Larry Page and Sergey Brin co-founded a tiny search engine that eventually became the top search engine in the world. While finishing their doctoral degrees in Stanford University, the co-founders got together and decided to build a test version. Shortly after their meeting they received $1 million in investment from investors, and Google began to receive thousands of users per day. They are worth of $46 billion as a result of their joint ownership of 16% of Google.

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These are just a few benefits of a alliance.

  • It’s simple to form. There is minimal formalities required to create sole proprietorship. If you’re required to use a fake name (doing business under) then you’ll need to submit an application for a Certificate of Conducting Companies as Partners and create the Articles of Partnership agreement. These costs can be very expensive. Also, you’ll need an official business license.
  • Possibility of growth. Possibility of growth. increases the likelihood to get an mortgage . If you do not have excellent credit, banks might take into consideration different credit lines.
  • Taxation of special taxation. General partnerships have to submit federal tax forms 1065 as well as state returns. They typically don’t pay taxes on income. Every partner has to report their losses and income shared on their own taxes on income. If you own the bakery with a person you know and set up the company in an LLC, you’re both co-owners. Each of you brings your own knowledge and experience, which can affect the share of the company as well as the contributions to each of the owners. Let’s say you contributed the highest amount of money to start the business. It may be determined that your share ratio is greater and you’re an owner in the majority.

Here are a few instances of partnership

Partnerships are the next well-known form of business structure after sole proprietorships. Here are a few types of partnerships which have proven profitable:

  • Warner Brothers
  • Hewlett Packard
  • Microsoft
  • Apple
  • Ben & Jerry’s
  • Twitter

3. Limited liability company

A limited liability company (LLC) is a hybrid entity that permits shareholders, owners, and partners to reduce their personal liability, while having benefits of flexibility, as well as tax advantages of the partnership. If it’s not proved that the members were acting unlawfully, illegally or negligently in the management of the company’s operations An LLC safeguards the members from personal liability.

Brian Cairns CEO of ProStrategix Consulting declared that LLCs were created to provide business owners with the same protection against liability as corporations, yet let losses and profits be passed onto the owners via income tax returns. LLCs may be comprised of one or more members. Profits and losses don’t need to be split equally between members.

The filing costs for state entities are included in the price of forming an LLC. They range between $40 and $500 based on the location you choose to file. For New York, for example you’ll need to pay a filing fee of $200 as well as a $9 annual fee. Also, you must prepare a biennial statement with the New York Department of State. Read our step-by step guide on how to establish an LLCand file a biennial report.

While LLCs are a viable option for small companies, a lot of big companies opt for this legal form of organization. Anheuser-Busch Companies is one example of an LLC. It is among the top companies on the U.S. beer market. Anheuser-Busch has its headquarters at St. Louis (Missouri) is a wholly owned company that is part of Anheuser-Busch InBev. The multinational brewery company is located within Leuven which is located in Belgium.

Examples of LLCs

While LLCs are most popular in accounting, tax, or law firm, different kinds of businesses can be registered as LLCs. These are just a few of the most popular examples:

  • Pepsi-Cola
  • Sony
  • Nike
  • Hertz Rent-a-Car
  • eBay
  • IBM

4. Corporation

A corporation is regarded as an entity that is independent of its owners as per the law. The corporation is an organization with legally-enforceable rights, and is able to suit, sue, and have property owned and sold. Stocks are also offered to purchase. The costs for filing corporation paperwork differ based on the state they’re in and the class they fall in. The state of New York, for example fees for filing C corporate as well as S corporate fees amount to $130. The non-profit fee is $75.

There are many kinds of corporations, including C-Corporations, S Corporations, and B corporations. Closed corporations are also known as nonprofit corporations.

  • C Corporation owned by shareholders are taxed in a different manner. Morgan Chase & Co. is a multi-national investment and financial services holding bank, is classified as a company. Numerous larger corporations like Apple Inc. and Bank of America are able to apply for C corporate status since they are able to allow unlimited investors.
  • Scorporations are designed to be used by small-sized businesses. They are tax-free and can also be used as LLCs or partnerships. Owners also have only a limited amount of liability insurance. Widgets Inc. is an S-corporation which is very easy to operate is a company that has employees as a subject of FICA Tax, while any additional profits that are distributed through the S company can be exempted of FICA tax.
  • Benefit corporations are for-profit companies with a positive impact on the society. It is the Body Shop is recognized for its involvement in environmental and social movements. The Body Shop has been granted the status of B-corporation. Body Shop is a non-profit organization that Body Shop advocates for lasting improvements in areas such as domestic violence, human trafficking or climate-related change.
  • Closed corporations are generally run by a handful of shareholders. They have a only a limited liability insurance. They are not traded publicly. Privately owned corporations have more flexibility than public companies. Hobby Lobby, a closed company, is a family owned and privately owned company. Hobby Lobby stocks are not listed on the market, but instead they are given to family members.
  • There are open companies that are able to exchange their shares on a publicly-traded exchange. They are a typical kind of company. Every corporation is the owner of the company , and anyone is able to invest.
  • Non-profit organizations help people in need and they are awarded tax-free status. They include the Salvation Army and American Heart Association are two examples of non-profit organizations. These businesses are not intended to earn a profit.

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This business structure offers numerous positives:

  • Limited liability. Stockholders aren’t personally responsible for any legal claims against your company and are solely responsible for their own investment.
  • Continuity. Companies aren’t affected by the death of their owner or transfer of share. Creditors, investors and consumers would prefer your business continues to function for as long as they want.
  • Capital. Once your company is established, it is easier to raise large sums of money from investors in multiple ways.

This kind of business is ideal for firms that are more advanced in their growth than those that are based in a room. If you own the shoe business, and have given it a name, appointed directors, and raised funds from investors, you should incorporate. This permits you to manage the business on a more yet more profitable rate. Your company may be able to file with an S-corporation in order to get tax advantages.

Here are a few examples of corporates

It is a good idea to incorporate your company once your business has reached an amount. There are many examples of companies that are famous like:

  • General Motors
  • Amazon
  • Exxon Mobil
  • Domino’s Pizza
  • P. Morgan Chase

5. Cooperative

The same owners who run the cooperative (co-op) are the owners. The members of the cooperative (also known as users-owners) profit from the services it offers. They are able to vote on the company’s direction and mission, as well as profit sharing. Cooperatives offer many benefits:

  • Taxes are not as high. The cooperative differs from an LLC because it does not tax its members on their earnings.
  • Funding increases. Federal grants could be offered to cooperatives , which can aid them in getting off the start.
  • Receive better service and lower prices Through leveraging their business size, cooperatives can enjoy discounts for members.

The process of forming a cooperative is difficult. It is necessary to select the name of your business that indicates what type of cooperative it is. an entity or a corporate entity (Inc.) or a limited. The filing fees for each state associated with cooperative agreements differ. For instance in New York, the filing fee for incorporating a business is $125.

CHS Inc. is an example of cooperatives. It is an Fortune 100 company that is controlled by U.S. agriculture cooperatives. CHS is the largest agribusiness cooperative , posted its net profit for the fiscal year that ended on August 31, 2019 in the amount of $829.9 millions.

Cooperatives in the form of examples

Co-ops, in contrast to other business forms, are owned and operated by the same people who manage them. A few examples of co-ops are:

  • Land O’Lakes
  • Navy Federal Credit Union
  • Welch’s
  • REI
  • Ace Hardware

Be aware of these aspects before deciding on a company structure

It isn’t easy to determine the best structure of a business that is in any of the categories. Be aware of your startup’s financial needs as well as your the risk-taking capacity and growth potential. Once you’ve created your company it isn’t easy to alter the legal structure of your company. Be sure to conduct this thorough study during the beginning phases of your business’s formation.

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These are crucial considerations to consider when selecting the appropriate legally-sound structure to your business. Your CPA is a good source of guidance.


What type of legal structure is the best for the growth of your business? When you review the business plan, consult them to determine which legal structure best aligns with your objectives. Your company must be willing to grow and change, but not stop its ability to reach its maximum potential.


Sole proprietorship is the ideal choice for startups and operations with complex. It is simple to create your business name, start your business, declare profits and make payments for taxes. It isn’t easy to secure outside funding. For partnerships however, a signed agreement is required to lay out the roles of each partner and to share of profits. There are distinct reporting requirements for LLCs and corporations that are regulated by local governments and the federal government.


Since a corporation can be considered an institution, an LLC is subject to the least personal liability. Customers and creditors are able to take legal action against the corporation, but they cannot access personal assets of the officers or directors. A LLC offers the same protections, however it has benefits in taxation as sole proprietorship. According to the partnership agreements, partners are responsible for each other.


The proprietor of an LLC is accountable for taxation as sole owner. Profits are considered personal income and taxed according to the end of the year.’s chief marketing specialist Jennifer Friedman stated, “As a small-business owner, you want avoid double taxation in your early stages.” The LLC structure allows you to keep this from happening and also ensures that you don’t pay tax both as a businessperson and also as an entity.

Partners in partnerships can also claim their share of the profits as personal income. To limit the impact on your tax return Your accountant may suggest quarterly or biannual advance payment.

Every year, a business prepares tax returns, and pays taxes on its profits following expenses. The corporation is responsible for personal taxes if you get funds from the company. That is the case for Social Security and Medicare. Take a look at our reviews on the top payroll providers. [


A LLC or sole proprietorship could be the right choice for you if you want to have the primary or the sole control over your business’s operations. This type of control can be discussed in an agreement for partnership.

A business is intended to have a Board of Directors that makes the most crucial decisions and oversees them. While one person might be in control of the company at its beginning and throughout its lifespan it is more crucial to be managed by an executive board when it grows. Even for smaller corporations they must follow the same guidelines that are applicable to larger companies like taking notes on any decision that could have any impact for the business remain in place.

Capital investment

A corporation is the best choice if you’re looking for funding from outside. It is much easier to get external funding for corporations rather as opposed to sole proprietorships.

Corporations are able sell shares of their stock and also obtain additional funds to grow, whereas sole proprietors are not able to access funds from their personal accounts. They are only able to utilize credit cards or contract with partners. While an LLC could be faced with similar issues however, the company’s owner doesn’t have to make use of their own personal assets or credit card.

HTML1 Permits, licenses, and rules

There are also permits or licenses to operate your business along with an official registration for your company. Based on the nature and the activities of your company, licenses may need to be obtained at state, local or federal levels.

Friedman explained that states have their own requirements for different types of business structures. “Depending on where you’re establishing your business there could be distinct requirements for municipal authorities. When selecting a structure, take into account the type of business and the state that you’re in. There isn’t a ‘one size for all’ solution. Furthermore, some companies may not know which options are available.

These structures can only be applied to businesses that are not for profit. Friedman recommends consulting with a legal professional if you’re not certain which one is the best one for your company.

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