Small Business Information Center. Com

Small Business: What about the legal structure? 

Small business forms in a nutshell: 

Now that you have found the perfect name for your small business you will need to give it a legal structure.  There are very few things that will affect your small business on a daily basis more than the actual legal form that it takes.  The structure that your small business takes will affect many things including your taxes, your legal liability, and if you have one or more partners, how the profits and losses are allocated among the owners.  There are many different legal structures to choose from with each having specific advantages and disadvantages, making each one more or less appropriate for your specific small business.  An accountant or attorney will usually be the best adviser on which type of small business structure is most appropriate for you. 

The main factors involved in deciding which is the most appropriate business structure for your small business are the way taxes will be handled and paid, the amount of paperwork involved, the personal liability you will face and your ability to raise money.  

The most common forms of small businesses are sole proprietorships, partnerships, corporations, S corporations and nonprofit corporations.  A more recent development to these forms of business are the limited liability company's (LLC) and the limited liability partnerships (LLP).  Because each small business form comes with different tax consequences, you will want to make your selection wisely and choose the structure that most closely matches your business needs.   

If you decide to start your small business as a sole proprietorship then later decide to take on partners, you can reorganize at that time as a partnership or any other type of small business entity for that matter.  If you decide to form another type of business such as a partnership or corporation later on, you will want to notify the IRS as well as your state tax agency.  In many cases these notifications will become part of the natural process such as when your small business decides to incorporate. 

We will briefly consider each of the basic small business structures of sole proprietorships, partnerships, corporations, limited liability partnerships (LLP) and limited liability companies (LLC) on the following pages.  Once again, this is an incredibly important decision for your small business to make, and will continue to have many implications in the days to come, so choose wisely, with the help of a trusted adviser such as a good accountant or attorney. 

By Paul Susic M.A. Licensed Psychologist Ph.D. Candidate  CEO/President  Susic Psychological Consulting  P.C.