1. Which are the common types of legal structures for business?
Sole Proprietorship: Owned by one person; the simplest of all.
Partnership: Two or more people share the ownership.
Also read :
- https://lawstrategix.com/6-key-questions-entrepreneurs-have-about-startup-legalities/
- https://lawstrategix.com/20-questions-and-answers-about-compliance-in-corporate-law/
- https://lawstrategix.com/8-frequently-asked-questions-about-corporate-mergers/
Limited Liability Company (LLC): Has liability protection plus tax flexibility
Corporation (C-Corp): An independent legal existence, more forms, taxed on both corporate and personal levels
S Corporation: A special corporate tax status avoids double taxation.
2. What is the proper way to decide on the structure of my legal business?
Consider liability protection, taxation, management structure, and funding needs. A legal or financial advisor is a good place to seek guidance.
3. What are the most significant distinctions between an LLC and a corporation?
LLC: More flexibility in management and tax treatment.
Corporation: Requires more formalities of a board of directors, annual meetings, and is much more compliant.
4. What is limited liability, and why is it important?
Limited liability protects the personal assets of the owners from business debts or lawsuits. This is very important for managing financial risk.
5. What is a registered agent, and do I need one?
A registered agent is a person or entity that can receive legal documents on behalf of the business. It’s often required for LLCs and corporations.
6. How does taxation differ among business structures?
Sole Proprietorship/Partnership: Income passes through to the owner’s personal tax return.
LLC: Can elect pass-through taxation or corporate taxation.
Corporation (C-Corp): Subject to corporate income tax and possible double taxation on dividends.
S Corporation: Pass-through taxation but with more stringent eligibility requirements.
7. Can I change my business structure later?
Yes, businesses can often transition from one structure to another, but this may involve legal, tax, and administrative implications.
8. What is the purpose of bylaws or an operating agreement?
Bylaws: Rules governing corporations, including operations and decision-making.
Operating Agreement: Rules governing LLC operations and members’ rights and responsibilities.
9. How do business structures affect raising capital?
Sole Proprietorship/Partnership: Few choices, rely on personal funding or loans.
Corporations: Easier to raise capital through equity, such as issuing stocks.
LLCs: Flexibility in attracting investors but less standardized than corporations.
10. Are there specific requirements to register a business structure?
Yes, requirements vary by jurisdiction but typically involve filing documents like articles of incorporation (corporations) or articles of organization (LLCs) with the state, and paying filing fees.
