Determining the Legal Structure of Your Business
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Tuesday, February 20, 2018
By GFG Games
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When starting a business, there is no one-size-fits-all option for determining your business' legal structure. The legal structure is important because it defines how your business operates in three crucial ways: 


  • Who shares in profits and losses?
  • What taxes are paid?
  • Who or what is legally liable for the company and its actions?
From an article published on:


There are several different kinds of business structures, some are covered below. 
(As always, check with your Accountant or your Attorney for help in deciding what type of business structure is right for you.)



A sole proprietorship is the most basic legal structure. One person owns the company and is responsible for its assets. 
Many sole proprietors do business under their own names rather than create a separate business name. 
A sole proprietorship is not a separate legal entity from the owner. 
Profits go directly to the owner and the owner is responsible for all legal liability, debts, and losses. 
A business owner does not have to take any action to form a sole proprietorship.



The independent legal entity called a corporation (also known as a C corporation) is a complex business structure. 
It's the corporation, not the people, who own it and it's legally liable for any debts incurred or legal action taken against it. 
Owners hold shares in the company and shares may be privately or publicly sold to help raise money for the corporation.

1. Corporations can retain some of their profits without the owner paying taxes on them.
2. Corporations have complicated tax and legal requirements and have costly administrative fees.
3. They are highly regulated by the government.
4. Corporations endure after the passing or bankruptcy of a shareholder.
Corporations are ideal for business owners who need liability protection.



  • Is an independent entity. 
  • Offers liability protection for shareholders. 
  • Has the ability to sell shares. 
  • Is a complex business structure with complicated tax and legal requirements. 
The major factors that differentiate S corporations are:
  • Taxes - the business is not taxed itself. 
  • Profits and losses pass through to the shareholders.
  • Shareholders must be paid "reasonable compensation" if they work for the company (with C corporations there is no such stipulation).
  • S corporations can only issue common stock, whereas C corporations are not limited in the kind of stock they can issue.
  • S corporations may be more attractive to small business owners than C corporations because of their tax structure and the liability protection they offer.



A limited liability company (LLC) is the middle option between a sole proprietorship or partnership and a corporation. 
  • An LLC is made up of members (owners) and can have an unlimited amount of members. 
  • Members decide how to distribute profits and losses. 
  • Members are not personally responsible for company's debts or legal liabilities. 
  • The LLC dissolves upon the death or bankruptcy of a member. 
  • Members must go through the process of forming the LLC. 
LLC'S can be companies with hundreds of employees and dozens of members or single-owner, non-employer businesses.


The information provided herein is not intended to be legal or compliance advice. Gold Fusion software products include multiple settings and licensee-selectable options that should be used only upon the advice of legal counsel who advises the end user licensee regarding how the licensee can comply with the end user's covenant of lawful operation in the jurisdiction where the software product is used. The end user licensee must not assume that all software products and all setting are lawful for use in all jurisdictions, or lawful for use in connection with all methods of retail operation. WE DISCLAIM ALL WARRANTIES TO THAT EFFECT.


Sent on 20 Feb 2018 via Zoho

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