What Are the Legal Forms of an Organization
An important part of choosing a type of business is what needs to be legal and what its tax implications are. One of the first decisions you will make as an entrepreneur is how your business will be structured. You need to know the pros and cons of each of the different forms of business organization to make sure you`re making the right decision for your new business. Tip: The formation of an LLC requires the business owner to file legal documents. You may want to consult a lawyer to help you with the process. The following is a list of service providers in Kansas City that provide legal assistance. The legal form of the organization in the business plan is used to decide how the business will operate, how roles will be assigned, and how relationships will work.3 min spent reading Making a profit is a key goal for the vast majority of businesses. How business owners profit from profits and incur losses varies depending on the legal form. Below we show how profits and losses are treated in different business forms. In a partnership, two or more people share ownership of a single business. As with property, the law does not distinguish between the business and its owners.
Partners should have a legal agreement that specifies how decisions will be made, benefits will be shared, disputes will be resolved, how future partners will be included in the partnership, how partners can be purchased or what steps will be taken to dissolve the partnership if necessary. – It is subject to double taxation. (Corporate and shareholder profits are taxed.) – It can be expensive. – There are more administrative tasks. This type of corporation is required by law to hold annual meetings, to inform shareholders of the meeting and to keep minutes of meetings. – C-Corps pay corporate income tax at a different time than other forms of business. A partnershipTwo or more people who voluntarily carry on a business as a for-profit co-owner. are two or more individuals who voluntarily carry on a business as for-profit co-owners. Partnerships account for more than 8% of all companies in the U.S.
and more than 11% of total revenue. William M. Pride, Robert J. Hughes and Jack R. Kapoor, Business (Boston: Houghton Mifflin, 2008), 150. Like sole proprietorships, partnerships do not distinguish between businesses and owners (see Table 12.2 “Partnerships: Summary of Characteristics”). There should be a legal agreement that “determines how decisions are made, benefits are shared, disputes are resolved, how future partners are included in the partnership, how partners can be bought out, and what steps are taken to dissolve the partnership if necessary.” Small Business Planner: Choose a Structure,” US Small Business Association, accessed 3. February 2012 archive.sba.gov/smallbusinessplanner/start/chooseastructure/index.html. Many business development organizations in Missouri offer legal services to help you take these first steps in starting your business.
Start with this list or go to the Resource Browser to filter this list by location, industry, etc. – It is easy to establish (except for the development of a partnership agreement). – A separate legal status provides liability protection. – Profits are taxed only once. – Partners may have complementary skills. Liability: LLC members are protected from personal liability for debts and business claims, a feature known as “limited liability.” If a limited liability company owes money or faces a lawsuit, only the assets of the company itself are threatened. Creditors cannot access the personal property of LLC members except in cases of fraud or illegality. LLC members should exercise caution so as not to “break the corporate veil,” which would expose members to personal liability. For example, LLC owners should not use a personal checking account for business purposes and should always use the LLC trade name (rather than the owner`s individual names) when working with clients. This structure is generally suitable for established organizations that have multiple and often complex products, so each product requires its own functional structure. Like the functional structure, it recognizes that there are different types of product lines, each requiring its own functional structure of different management functions.
A sole proprietorshipThe most basic type of business organization in which there is only one owner. is a business owned and normally carried on by an individual. It is the oldest, simplest and least expensive form of business ownership because there is no legal distinction between owner and business (see Table 12.1 “Sole proprietorships: a summary of characteristics”). Sole proprietorships are very popular, accounting for 72% of all businesses and a total turnover of nearly $1.3 trillion. U.S. Internal Revenue Service, “Selected returns and forms filed or to be filed by type during specified civil years 1980–2005,” SOI Bulletin, Historical Table, Fall 2004, as cited in John M. Ivancevich and Thomas N. Duening, Business: Principles, Guidelines, and Practices (Mason, OH: Atomic Dog Publishing, 2007), 60. Sole proprietorships are common in a variety of industries, but the typical sole proprietorship has a small retail department or operation, such as dry cleaning, accounting services, insurance services, roadside stand, bakery, repair shop, gift shop, painters, plumbers, electricians, and landscaping services. John M.
Ivancevich and Thomas N. Duening, Business: Principles, Guidelines, and Practices (Mason, OH: Atomic Dog Publishing, 2007), 60; according to David L. Kurtz, Contemporary Business, 13th Edition Update (Hoboken, NJ: John Wiley & Sons, 2011), 163. Obviously, sole proprietorship is the choice for most small businesses. – This is the most common business structure and was created specifically for small businesses. – This type of entity requires insurance in case of prosecution. – It is an independent legal entity. – LLCs are generally taxed as sole proprietorships. – LLCs can have an unlimited number of owners. Incorporation: To form an LLC, you must pay a filing fee ($100 to $800) and have a by-law when the entity is formed.
Company agreements are highly recommended, but not required by all states. Similar to a partnership agreement or a company`s bylaws, the LLC operating agreement establishes rules for the ownership and operation of businesses. A standard enterprise contract includes: In most cases, taxed as a partnership; Business forms should be used if there are more than 2 of the 4 business characteristics, as described above. You need professional legal advice to make this decision, but the first step is to learn what the different structures are, depending on your situation, long-term goals, and preferences.