Home / Insights / What Type of Legal Structure Is Right For Your Business?

What Type of Legal Structure Is Right For Your Business?

March 6, 2023

When you start a business, one of the first decisions you must make is what type of legal structure is right for your business. There are different types of legal entities, including sole proprietorships, partnerships, limited liability companies (LLCs), limited liability partnerships (LLPs), S-Corps, C-Corps, and others. The best one for you depends on various factors. Consulting with one of our business attorneys can help you make a well-informed decision as well as lay the proper foundation for properly managing the operations of your company. 

How Do You Decide the Correct Type of Legal Entity For Your Business?

Each type of legal structure has different benefits and drawbacks which should be considered. For instance, corporations, LLCs, and LLPs provide liability protection for business principals. However, there may be disadvantages in how income is treated for tax purposes. Some entities are easier to set up than others which may be a consideration. If you are looking to find investors, you have to consider which types of entities are more likely to attract outside investors. Ultimately, the decision should be based on the type of business you engage in, industry norms and standards, and your goals for your business. 

What Documents Do You Need to Set Up Your Business?

Your business will be controlled by various documents that must be drafted when you create your business. These include shareholder agreements for corporations, partnership agreements for partnerships, and operating agreements for LLCs that formalize your corporate structure and governance. The agreements should detail the organization and management of the company and relationship between the principals. In addition, the company will need bylaws that set forth the rules of the business. 

It is important that you understand the rights and obligations imposed by these documents because you must comply with them to uphold your business structure and avoid jeopardizing your protection from personal liability. It will also help minimize disputes among the principals that could adversely affect the company. If you haven’t drafted the appropriate documents, an attorney can help you even after you formed your company.

In addition, you also need to register with the State or other governing authority for your jurisdiction or industry to ensure that your business is operating in accordance with the law.

Can You Change Your Corporate Structure and Governance Documents?

Periodically, an attorney should review your existing documents to advise you if updates in the law or regulations might require revising your existing documents or drafting new ones. In some cases, changes in your business, current market conditions, or regulations might necessitate a restructuring or reincorporation. Importantly, a lawyer can assess your business and counsel you on whether it is in your best interests to restructure or reincorporate to take advantage of new benefits or protect against new concerns.

How Can an Attorney Help Your New Business?

Selecting the right legal structure and having well-drafted governance documents can have a significant effect on the success of your business. If you didn’t have an attorney help you when you formed your business, it isn’t too late to get assistance. 

We provide comprehensive services to start-up and small businesses. Our attorneys can assist you in setting up your company properly and advise you on the multitude of issues that can arise. Contact us for help with a specific legal matter or learn more about our Fractional General Counsel services. 

FEATURED VIDEO

Smith Legacy Law:
Your Lawyers For Life

Recent Posts

Halt! Employee Retention Tax Credit Processing on Pause

The Employee Retention Tax Credit (ERTC) was established as part of the 2020 Coronavirus Aid, Relief and Economic Security (CARES) Act to help businesses that retained employees during the pandemic. While many businesses have taken advantage of the ERTC program and...

You Have a Judgment – Now What?

You have finally completed litigation, prevailed in your case, and received a money judgment against your adversary. Now what? A judgment by a court for a specific amount of money entitles you to the amount stated, but it does not actually provide you with funds....

Estate Planning Considerations for Non-Citizens

U.S. citizens and non-citizens are subject to U.S. tax laws. However, U.S. citizens receive certain tax benefits throughout their lives and even upon their death by virtue of their status as citizens. Non-citizens do not enjoy all of these benefits, particularly when...