ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Chooosing The Right Legal Structure For Your Business

Updated on November 15, 2012

There are a number of considerations you will have to take into account when starting your new business. One of them is picking the right legal structure for that business. Whether you will be providing some sort of service or selling products, it’s crucial you choose the right structure for your business, understand this decision is of utmost importance, for it can affect how much you pay in taxes, handle investments in your business, your liability in the business and financial security.

If you are not sure or comfortable in making this decision yourself always consider legal and professional help. So what are the legal structures you’ll have to choose from, well this Article will tell you what they are and their descriptions.

Sole Proprietorship

This is the default legal structure unless you ask to be otherwise, a sole proprietor means that you are the boss; it means that one person is the owner and operator of the business, the owner is entitled to all the company profits. But on the other hand, the sole proprietor is also liable for the business losses and all the legal issues that may arise from operating of the business. The business owner under a sole proprietorship reports business income or losses on his/her personal tax returns, this is because the business is not taxed separately, the owner is essentially the business.


A partnership is an association between two or more people in operation of the business. In a partnership the partners are liable for debts of the business. Partnerships are usually sustained by an agreement. The agreement will contain terms that each partner will be responsible for and how profits are distributed in the business. The owners of partnerships similar to a sole proprietorship reports their business income or losses on their personal tax returns.


A limited liability partnership or LLP protects the individual partners from debts or liabilities. A limited liability partnership gives partners a voice in managing the business, but not share in its liabilities. The day to day operations in most cases will be done by the general partners.


The LLC has become a very popular business structure over the years due to their ease and flexibility. A Limited Liability Company is not taxed differently from a sole proprietorship, but provides limited protection of a corporation. The owners can use their losses to offset income; however this is up to the amount they invested in the company. Personal assets in an LLC have more protection than a sole proprietorship. On the other hand depending on your state an LLC can be subject to additional taxes, so do your research.


When you decide to incorporate your company it will become a separate legal entity. A Corporation can own property, land and can also engage in lawsuits. If the corporation were to get sued, the personal assets of the owners are safe, as the corporation is a separate entity. A Corporation can be public, by selling stocks, or it can remain private and not sell stock to the general public. There are two types of distinctions in corporate taxation choices, C Corporation and an S Corporation. By default when you incorporate you will have a C Corporation tax status; however you can file for S corporation status at a later date.

What are the Differences between a C Corporation and an S Corporation?

S corporations receive the advantage of being taxed one time by the government. C corporations are taxed as corporate entities, their shareholders; including owners are taxed as well, so essentially with C corporation status you end up being taxed twice. S corporations may only have 75 owners, whereas C corporations are unlimited. S corporations may only issue one class of stock whereas C corporations can offer an unlimited class of stocks.

So remember before you start your business consider your many options when it comes to choosing a legal structure for your business. Making this decision requires a lot of research and possibly legal consultation so do not take this decision lightly, for it may have profound effects in how you operate your business, who you answer to, and where a big portion of your money ends up.


    0 of 8192 characters used
    Post Comment

    No comments yet.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)