How to Structure Your Business Legally

You’ve got to decide on the legal structure of your business. To simplify, you can conceive of these possible structures as a series of steps from the day you first earn a dollar on your own, to your initial public offering. Not everybody follows these in order however. Many doctors set themselves up from the start as professional corporations to protect their personal assets from lawsuits. Here are the steps your business could take as it grows.

Instructions

Difficulty: Easy

1. Sole Proprietorship.
   This is the simplest. The owner bears the entire responsibility for the business and reaps its rewards. You are your business. In many places, if you are offering a service like gardening, you don’t need to do anything more than name your business after yourself and it’s considered established
2. General Partnership.
   If you take on a partner or two you share your rights and duties. General Partners are personally liable for the debts and obligations of the business. General partners are considered co-owners of a going for profit business. The most important factor in determining whether or not a business is a partnership is whether or not the partners share profits and management decisions. The agreement to form this could be in writing or oral.
3. Limited Partnership.
   As your company grows, you’re next step could be a Limited Partnership, which has two types of partners, general as outlined above and limited who do not participate in management decisions and aren’t liable for partnership debts past their contribution of capital. This agreement must be in writing.
4. Limited Liability Company.
   An LLC is a separate legal entity distinct from its members which can sue or be sued enter into contracts or hold property. The owners of an LLC are usually called members and are not personally liable for the debts of the LLC past their contribution, yet they can take a hand in management. It’s governed by the laws of the state in which it is established.
5. A Corporation is effectively an artificial person and is responsible for its own debts and contracts. Shareholders are only liable to the extent of their own investments. Shares can be freely transferred. Corporations are considered to be immortal. They are run by a board of directors that appoints formal managers. They come in many flavors including non profit and for profit; public and private; publicly closely held and professional corporations. These are governed by state laws.
   
   Unless you’ve decided on starting simply and establishing yourself as a sole proprietor, it’s time to confer with that attorney you’ve chosen to see which business structure is best for you.