How to write the structure and ownership section of your business plan?

structure and ownership in a business: different types of liabilities that a business may incur

Business planning is vital to the success of any entrepreneur because it helps them secure funding and find competent business partners. The document itself contains a variety of key sections, including the presentation of the legal structure and ownership of the business.

This section details the legal structure of your business and helps interested parties such as lenders and investors understand who they will be doing business with if they decide to go ahead and finance your company.

In this guide, we’ll look at the objective of the structure and ownership section, deepdive into the information you should include, and cover the ideal length. We’ll also assess the tools that can help you write your business plan.

Ready? Let’s get started!

In this guide:

What is the objective of the structure and ownership section of your business plan?

What information should i include when presenting the legal structure and ownership of my company in my business plan.

  • How long should the structure and ownership section of your business plan be?
  • Example of structure and ownership in a business plan

What tools should I use to write my business plan?

The objective of this section is to provide potential investors, lenders, and strategic partners with a clear and transparent view of your business's legal form, ownership distribution, and registration details. 

It aims to build credibility and trust by showcasing your commitment to openness and compliance with regulations. Let's take a look at some of the key objectives:

Communicate the legal form and registration details

  • You should explicitly state your business's legal form. For example, your business might be corporation, sole proprietorship, or limited liability company (LLC). 
  • Clearly explaining your chosen legal form helps stakeholders understand your entity's liability, taxation, and management implications.
  • It is also essential to disclose where your company is registered. This information is vital as it provides clarity on the jurisdiction under which your business operates. 
  • It also helps investors and lenders assess any legal and regulatory implications specific to the location of registration.

Identify shareholders

  • Potential investors and lenders need to know who owns the company and the percentage of ownership each party holds. 
  • By providing this information, you instill confidence in your business and help identify what needs to be verified as part of Know Your Customer (KYC) and Anti-Money Laundering (ALM) checks down the line.

Transparency is the cornerstone of credibility for businesses. By openly presenting the legal structure and ownership, you signal to potential investors that your business operates with integrity and adherence to regulations. 

Notably, anti-money laundering regulations require investors to verify the identity of all shareholders before committing funds. By providing a clear picture of the parties involved, you can facilitate this process and build trust with investors.

Venture capitalists (VC) firms and angel investors in particular, may have specific criteria such as location and ownership mandates governing the companies they can finance. Being transparent about your company's structure and ownership enables potential investors to assess whether your business aligns with their investment preferences and requirements.

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The structure and ownership subsection arrives quite early in your business plan as it is the first part of the company section which is the second section of the document (after the executive summary) if you are following a standard business plan outline .

At this stage, the reader is still in the process of getting familiar with your business, and this section serves as a crucial foundation for potential investors and partners and helps them understand the core aspects of your business’s structure.

Here's what you should include:

Company registration details and registered office address

Provide information about when and where your company was registered and its registration number. This enables readers to understand the jurisdiction under which your business is operating and helps verify its legal existence.

Also, mention the registration date to showcase the company's longevity or recent establishment.

Include the registered office address of your company. This is the official address where the company can be contacted, and legal notices can be served. Providing this address demonstrates your commitment to compliance and transparency.

The information above needs to repeated for each subsidiary or joint venture owned by your business in order to provide a clear map of the coporate structure.

Overview of ownership

Offer a concise overview of the ownership structure of the company. Identify the shareholders, and specify their ownership percentages or shares. 

If there are numerous shareholders, list individuals or entities owning 5% or more, and highlight those with a controlling interest in the company or on the board.

If the business is controlled by another business, such as a holding company for example, it is also useful to explain who controls that business as well.

Roles and responsibilities of shareholders

In case of multiple shareholders, explain their respective roles and responsibilities within the organization. 

Differentiate between passive investors, board members, and executive or non-executive directors. 

Shareholders' agreement (if applicable)

If the business plan is presented for investment purposes, it is useful to clarify if a shareholders' agreement is in place between the existing investors. 

This agreement outlines the rights and obligations of shareholders and adds an extra layer of legal protection for investors and shareholders.

Expertise of co-shareholders

Highlight any shareholders who contribute more than just financial capital to the company. 

If, for instance, a shareholder is an industry expert and brings valuable advice, contacts, and credibility, emphasize this aspect. 

Doing so demonstrates the added value these shareholders bring to the business.

Group or franchise structure

If your company operates as part of a group or franchise, provide this information for each individual company receiving funds. 

Clarify the relationship between the main company and the individual entities within the group and their respective legal structures.

Addressing geographical restrictions

If some investors have geographical restrictions on their investments, clearly indicate whether your company meets their eligibility criteria. 

This helps investors quickly assess whether your business aligns with their investment mandates or not.

shareholders at a general meeting discussing about their business and future planning

How long should the structure and ownership section of your business plan be? 

The length of your business plan's structure and ownership section requires a delicate balance. 

While a general rule of thumb suggests that it should be about 2 to 3 paragraphs, the actual length depends on several factors, including the complexity of your corporate structure and the number of shareholders involved.

The complexity of your corporate structure 

  • A concise presentation may be sufficient if your company's legal structure is relatively straightforward, with a single owner or a small number of co-founders. 
  • In such cases, aim to provide the necessary information without overwhelming the reader with unnecessary details. A paragraph or two may convey the key points effectively, ensuring clarity and brevity. 
  • However, if you have a complex business structure, aim to provide details about members who play a key role in business continuity and profitability. 

The number of shareholders involved

  • If your business involves multiple shareholders, each with significant ownership percentages or unique roles, you may need to dedicate more space to this section. 
  • Do this by providing a comprehensive breakdown of ownership distribution and outlining each shareholder's contributions. 
  • This may take up more space as you need to add additional information. However, if you have a pretty straightforward ownership structure, a paragraph or two will be sufficient enough.

Regardless of the complexity, striking the right balance between providing sufficient detail and avoiding excessive technical jargon is crucial. The structure and ownership section should be reader-friendly, allowing potential investors and stakeholders to understand the core aspects of your company without feeling overwhelmed by intricate legalities.

Repetition can dilute the impact of your message and unnecessarily lengthen the section. Ensure that you don't reiterate information that has already been covered in other parts of the business plan. Instead, focus on providing unique insights and details that enhance the reader's understanding of your corporate structure and ownership.

When crafting this section, prioritize the most critical points that investors or partners need to know about your company's structure and ownership. 

Focus on aspects that directly impact decision-making, such as the majority shareholder's influence, board composition, different classes of shares in issue, or any unique arrangements that set your business apart.

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The Business Plan Shop has dozens of business plan templates that you can use to get a clear idea of what a complete business plan looks like.

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Example of structure and ownership section in a business plan 

Below is an example of what the structure and ownership section of your business plan might look like. As you can see, it is part of the overall company section and precedes the location and management team subsections.

The structure and ownership section of a business plan provides a detailed overview of how your company is organized and who holds ownership stakes in the business.

structure and ownership section: The Business Plan Shop's online software

This example was taken from one of  our business plan templates .

In this section, we will review three solutions for creating a business plan for your business: using Word and Excel, hiring a consultant to write the business plan, and utilizing an online business plan software.

Create your business plan using Word and Excel

This is the old-fashioned way of creating a business plan (1990s style) and using Word and Excel has both pros and cons.

On the one hand, using either of these two programs is cheap and they are widely available. 

However, creating an error-free financial forecast with Excel is only possible if you have expertise in accounting and financial modeling.

Because of that investors and lenders might not trust the accuracy of your forecast unless you have a degree in finance or accounting.

Also, writing a business plan using Word means starting from scratch and formatting the document yourself once written - a process that can be quite tedious - especially when the numbers change and you need to manually update all the tables and text.

Ultimately, it's up to the business owner to decide which program is right for them and whether they have the expertise or resources needed to make Excel work. 

Hire a consultant to write your business plan

Outsourcing your business plan to a consultant can be a viable option, but it also presents certain drawbacks. 

On the plus side, consultants are experienced in writing business plans and adept at creating financial forecasts without errors. Furthermore, hiring a consultant can save you time and allow you to focus on the day-to-day operations of your business.

However, hiring consultants is expensive: budget at least £1.5k ($2.0k) for a complete business plan, more if you need to make changes after the initial version (which happens frequently after the first meetings with lenders).

For these reasons, outsourcing the plan to a consultant or accountant should be considered carefully, weighing both the advantages and disadvantages of hiring outside help.

Ultimately, it may be the right decision for some businesses, while others may find it beneficial to write their own business plan using an online software.

Use an online business plan software for your business plan

Another alternative is to use online business plan software .

There are several advantages to using specialized software:

  • You are guided through the writing process by detailed instructions and examples for each part of the plan
  • You can be inspired by already written business plan templates
  • You can easily make your financial forecast by letting the software take care of the financial calculations for you without errors
  • You get a professional document, formatted and ready to be sent to your bank
  • The software will enable you to easily track your actual financial performance against your forecast and update your forecast as time goes by

If you're interested in using this type of solution, you can try our software for free by signing up here .

To sum it up, a well-written structure and ownership subsection is key to ensuring that the reader is clear on who controls the business, and whether or not it fits their investment criterias.

Also on The Business Plan Shop

  • How to do a market analysis for a business plan
  • How to present your management team in your business plan?
  • Where to write the conclusion of your business plan?

Know someone who needs help writing-up their business plan? Share this article with them and help them out!

Guillaume Le Brouster

Founder & CEO at The Business Plan Shop Ltd

Guillaume Le Brouster is a seasoned entrepreneur and financier.

Guillaume has been an entrepreneur for more than a decade and has first-hand experience of starting, running, and growing a successful business.

Prior to being a business owner, Guillaume worked in investment banking and private equity, where he spent most of his time creating complex financial forecasts, writing business plans, and analysing financial statements to make financing and investment decisions.

Guillaume holds a Master's Degree in Finance from ESCP Business School and a Bachelor of Science in Business & Management from Paris Dauphine University.

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How to Choose the Best Legal Structure for Your Business

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Table of Contents

Your business’s legal structure has many ramifications. It can determine how much liability your company faces during lawsuits. It can put up a barrier between your personal and business taxes – or ensure this barrier doesn’t exist. It can also determine how often your board of directors must file paperwork – or if you even need a board. [Related article: What to Do if Your Business Gets Sued ]

We’ll explore business legal structures and how to choose the right structure for your organization. 

What is a business legal structure?

A business legal structure, also known as a business entity, is a government classification that regulates certain aspects of your business. On a federal level, your business legal structure determines your tax burden. On a state level, it can have liability ramifications.

Why is a business legal structure important?

Choosing the right business structure from the start is among the most crucial decisions you can make. Here are some factors to consider:

  • Taxes: Sole proprietors, partnership owners and S corporation owners categorize their business income as personal income. C corporation income is business income separate from an owner’s personal income. Given the different tax rates for business and personal incomes, your structure choice can significantly impact your tax burden.
  • Liability: Limited liability company (LLC) structures can protect your personal assets in the event of a lawsuit. That said, the federal government does not recognize LLC structures; they exist only on a state level. C corporations are a federal business structure that includes the liability protection of LLCs.
  • Paperwork: Each business legal structure has unique tax forms. Additionally, if you structure your company as a corporation, you’ll need to submit articles of incorporation and regularly file certain government reports. If you start a business partnership and do business under a fictitious name, you’ll need to file special paperwork for that as well.
  • Hierarchy: Corporations must have a board of directors. In certain states, this board must meet a certain number of times per year. Corporate hierarchies also prevent business closure if an owner transfers shares or exits the company, or when a founder dies . Other structures lack this closure protection.
  • Registration: A business legal structure is also a prerequisite for registering your business in your state. You can’t apply for an employer identification number (EIN) or all your necessary licenses and permits without a business structure.
  • Fundraising: Your structure can also block you from raising funds in certain ways. For example, sole proprietorships generally can’t offer stocks. That right is primarily reserved for corporations.
  • Potential consequences for choosing the wrong structure: Your initial choice of business structure is crucial, although you can change your business structure in the future. However, changing your business structure can be a disorganized, confusing process that can lead to tax consequences and the unintended dissolution of your business. 

If you have to expand your business to another state , you won’t have to create a new company or structure, but you may have to register it as a “foreign entity.”

Types of business structures

The most common business entity types are sole proprietorships, partnerships, limited liability companies, corporations and cooperatives. Here’s more about each type of legal structure.

Sole proprietorship

A sole proprietorship is the simplest business entity. When you set up a sole proprietorship , one person is responsible for all a company’s profits and debts.

“If you want to be your own boss and run a business from home without a physical storefront, a sole proprietorship allows you to be in complete control,” said Deborah Sweeney, vice president and general manager of business acquisitions at Deluxe Corp. “This entity does not offer the separation or protection of personal and professional assets, which could prove to become an issue later on as your business grows and more aspects hold you liable.”

Proprietorship costs vary by market. Generally, early expenses will include state and federal fees, taxes, business equipment leases , office space, banking fees, and any professional services your business contracts. Some examples of these businesses are freelance writers, tutors, bookkeepers , cleaning service providers and babysitters.

A sole proprietorship business structure has several advantages.

  • Easy setup: A sole proprietorship is the simplest legal structure to set up. If you – and only you – own your business, this might be the best structure. There is very little paperwork since you have no partners or executive boards.
  • Low cost: Costs vary by state, but generally, license fees and business taxes are the only fees associated with a proprietorship.
  • Tax deduction: Since you and your business are a single entity, you may be eligible for specific business sole proprietor tax deductions , such as a health insurance deduction.
  • Easy exit: Forming a proprietorship is easy, and so is ending one. As a single owner, you can dissolve your business at any time with no formal paperwork required. For example, if you start a day care center and wish to fold the business, refrain from operating the day care and advertising your services.

The sole proprietorship is also one of the most common small business legal structures. Many famous companies started as sole proprietorships and eventually grew into multimillion-dollar businesses. These are a few examples:

  • Marriott Hotels

Partnership 

A partnership is owned by two or more individuals. There are two types: a general partnership, where all is shared equally, and a limited partnership, where only one partner has control of operations and the other person (or persons) contributes to and receives part of the profits. Partnerships can operate as sole proprietorships, where there’s no separation between the partners and the business, or limited liability partnerships (LLPs), depending on the entity’s funding and liability structure.

“This entity is ideal for anyone who wants to go into business with a family member, friend or business partner – like running a restaurant or agency together,” Sweeney said. “A partnership allows the partners to share profits and losses and make decisions together within the business structure. Remember that you will be held liable for the decisions made as well as those actions made by your business partner.”

General partnership costs vary, but this structure is more expensive than a sole proprietorship because an attorney should review your partnership agreement. The attorney’s experience and location can affect the cost. 

A business partnership agreement must be a win-win for both sides to succeed. Google is an excellent example of this. In 1995, co-founders Larry Page and Sergey Brin created a small search engine and turned it into the leading global search engine. The co-founders met at Stanford University while pursuing their doctorates and later left to develop a beta version of their search engine. Soon after, they raised $1 million in funding from investors, and Google began receiving thousands of visitors a day. Having a combined ownership of 11.4% of Google provides them with a total net worth of nearly $226.4 billion.

Business partnerships have many advantages. 

  • Easy formation: As with a sole proprietorship, there is little paperwork to file for a business partnership. If your state requires you to operate under a fictitious name ( “doing business as,” or DBA ), you’ll need to file a Certificate of Conducting Business as Partners and draft an Articles of Partnership agreement, both of which have additional fees. You’ll usually need a business license as well.
  • Growth potential: You’re more likely to obtain a business loan with more than one owner. Bankers can consider two credit histories rather than one, which can be helpful if you have a less-than-stellar credit score.
  • Special taxation: General partnerships must file federal tax Form 1065 and state returns, but they do not usually pay income tax. Both partners report their shared income or loss on their individual income tax returns. For example, if you opened a bakery with a friend and structured the business as a general partnership, you and your friend are co-owners. Each owner brings a certain level of experience and working capital to the business, affecting each partner’s business share and contribution. If you brought the most seed capital for the business, you and your partner may agree that you’ll retain a higher share percentage, making you the majority owner.

Partnerships are one of the most common business structures. These are some examples of successful partnerships:

  • Warner Bros.
  • Hewlett-Packard
  • Ben & Jerry’s

Limited liability company 

A limited liability company (LLC) is a hybrid structure that allows owners, partners or shareholders to limit their personal liabilities while enjoying a partnership’s tax and flexibility benefits. Under an LLC, members are shielded from personal liability for the business’s debts if it can’t be proven that they acted in a negligent or wrongful manner that results in injury to another in carrying out the activities of the business.

“Limited liability companies were created to provide business owners with the liability protection that corporations enjoy while allowing earnings and losses to pass through to the owners as income on their personal tax returns,” said Brian Cairns, CEO of ProStrategix Consulting. “LLCs can have one or more members, and profits and losses do not have to be divided equally among members.”

According to Wolters Kluwer , the cost of forming an LLC comprises the state filing fee and can vary depending on your state. For example, if you file an LLC in New York, you must pay a $200 filing fee, a $9 biennial fee, and file a biennial statement with the New York Department of State .

Although small businesses can be LLCs, some large businesses choose this legal structure. The structure is typical among accounting, tax, and law firms, but other types of companies also file as LLCs. One example of an LLC is Anheuser-Busch, one of the leaders in the U.S. beer industry. Headquartered in St. Louis, Anheuser-Busch is a wholly owned subsidiary of Anheuser-Busch InBev, a multinational brewing company based in Leuven, Belgium.

Here some other well-known examples of LLCs:

  • Hertz Rent-a-Car

To learn more about LLCs, read our LLC tax guide , our comprehensive overview of starting an LLC , and our guide to creating an LLC operating agreement.

Corporation 

The law regards a corporation as separate from its owners, with legal rights independent of its owners. It can sue, be sued, own and sell property, and sell the rights of ownership in the form of stocks. Corporation filing fees vary by state and fee category. 

There are several types of corporations, including C corporations , S corporations, B corporations, closed corporations, and nonprofit corporations.

  • C corporations: C corporations, owned by shareholders, are taxed as separate entities. JPMorgan Chase & Co. is a multinational investment bank and financial services holding company listed as a C corporation. Since C corporations allow an unlimited number of investors, many larger companies – including Apple, Bank of America and Amazon – file for this tax status.
  • B corporations: B corporations, otherwise known as benefit corporations, are for-profit entities committed to corporate social responsibility and structured to positively impact society. For example, skincare and cosmetics company The Body Shop has proven its long-term commitment to supporting environmental and social movements, resulting in an awarded B corporation status. The Body Shop uses its presence to advocate for permanent change on issues like human trafficking, domestic violence, climate change, deforestation and animal testing in the cosmetic industry.
  • Closed corporations: Closed corporations, typically run by a few shareholders, are not publicly traded and benefit from limited liability protection. Closed corporations, sometimes referred to as privately held companies, have more flexibility than publicly traded companies. For example, Hobby Lobby is a closed corporation – a privately held, family-owned business. Stocks associated with Hobby Lobby are not publicly traded; instead, the stocks have been allocated to family members.
  • Open corporations: Open corporations are available for trade on a public market. Many well-known companies, including Microsoft and Ford Motor Co., are open corporations. Each corporation has taken ownership of the company and allows anyone to invest.
  • Nonprofit corporations: Nonprofit corporations exist to help others in some way and are rewarded by tax exemption. Some examples of nonprofits are the Salvation Army, American Heart Association and American Red Cross. These organizations all focus on something other than turning a profit.

Corporations enjoy several advantages. 

  • Limited liability: Stockholders are not personally liable for claims against your corporation; they are liable only for their personal investments.
  • Continuity: Corporations are not affected by death or the transferring of shares by their owners. Your business continues to operate indefinitely, which investors, creditors and consumers prefer.
  • Capital: It’s much easier to raise large amounts of capital from multiple investors when your business is incorporated.

This structure is ideal for businesses that are further along in their growth, rather than a startup based in a living room. For example, if you’ve started a shoe company and have already named your business, appointed directors and raised capital through shareholders, the next step is to become incorporated. You’re essentially conducting business at a riskier, yet more lucrative, rate. Additionally, your business could file as an S corporation for the tax benefits. Once your business grows to a certain level, it’s likely in your best interest to incorporate it.

These are some popular examples of corporations:

  • General Motors
  • Exxon Mobil Corp.
  • Domino’s Pizza
  • JPMorgan Chase

Learn more about how to become a corporation .

Cooperative 

A cooperative (co-op) is owned by the same people it serves. Its offerings benefit the company’s members, also called user-owners, who vote on the organization’s mission and direction and share profits.

Cooperatives offer a couple main advantages.

  • Increased funding: Cooperatives may be eligible for federal grants to help them get started.
  • Discounts and better service: Cooperatives can leverage their business size, thus obtaining discounts on products and services for their members.

Forming a cooperative is complex and requires you to choose a business name that indicates whether the co-op is a corporation (e.g., Inc. or Ltd.). The filing fee associated with a co-op agreement varies by state. 

An example of a co-op is CHS Inc., a Fortune 100 business owned by U.S. agricultural cooperatives. As the nation’s leading agribusiness cooperative, CHS reported a net income of $422.4 million for fiscal year 2020. These are some other notable examples of co-ops:

  • Land O’Lakes
  • Navy Federal Credit Union
  • Ace Hardware

The five types of business structures are sole proprietorship, partnership, limited liability company, corporation and cooperative. The right structure depends mainly on your business type.

Factors to consider before choosing a business structure

For new businesses that could fall into two or more of these categories, it’s not always easy to decide which structure to choose. Consider your startup’s financial needs, risk and ability to grow. It can be challenging to switch your legal structure after registering your business, so give it careful analysis in the early stages of forming your business. 

Here are some crucial factors to consider as you choose your business’s legal structure. You should also consult a CPA for advice.

Flexibility 

Where is your company headed, and which type of legal structure allows for the growth you envision? Turn to your business plan to review your goals and see which structure best aligns with those objectives. Your entity should support the possibility for growth and change, not hold it back from its potential. [Learn how to write a business plan with this template .]

When it comes to startup and operational complexity, nothing is more straightforward than a sole proprietorship. Register your name, start doing business, report the profits and pay taxes on it as personal income. However, it can be difficult to procure outside funding. Partnerships, on the other hand, require a signed agreement to define the roles and percentages of profits. Corporations and LLCs have various reporting requirements with state governments and the federal government.

A corporation carries the least amount of personal liability since the law holds that it is its own entity. This means creditors and customers can sue the corporation, but they can’t gain access to any personal assets of the officers or shareholders. An LLC offers the same protection but with the tax benefits of a sole proprietorship. Partnerships share the liability between the partners as defined by their partnership agreement.

An owner of an LLC pays taxes just as a sole proprietor does: All profit is considered personal income and taxed accordingly at the end of the year.

“As a small business owner, you want to avoid double taxation in the early stages,” said Jennifer Friedman, principal at Rivetr. “The LLC structure prevents that and makes sure you’re not taxed as a company, but as an individual.”

Individuals in a partnership also claim their share of the profits as personal income. Your accountant may suggest quarterly or biannual advance payments to minimize the effect on your return. 

A corporation files its own tax returns each year, paying taxes on profits after expenses, including payroll. If you pay yourself from the corporation, you will pay personal taxes, such as those for Social Security and Medicare, on your personal return. 

To simplify payroll complexities and taxation issues, consider using a payroll service. Check out our reviews of the best payroll services to find a partner that fits your needs and budget.

If you want sole or primary control of the business and its activities, a sole proprietorship or an LLC might be the best choice. You can negotiate such control in a partnership agreement as well.

A corporation is constructed to have a board of directors that makes the major decisions that guide the company. A single person can control a corporation, especially at its inception, but as it grows, so does the need to operate it as a board-directed entity. Even for a small corporation, the rules intended for larger organizations – such as keeping notes of every major decision that affects the company – still apply.

Capital investment

If you need to obtain outside funding from an investor, venture capitalist or bank, you may be better off establishing a corporation. Corporations have an easier time obtaining outside funding than sole proprietorships.

Corporations can sell shares of stock and secure additional funding for growth, while sole proprietors can obtain funds only through their personal accounts, using their personal credit or taking on partners. An LLC can face similar struggles, although, as its own entity, it’s not always necessary for the owner to use their personal credit or assets.

Licenses, permits and regulations

In addition to legally registering your business entity, you may need specific licenses and permits to operate. Depending on the type of business and its activities, it may need to be licensed at the local, state and federal levels.

“States have different requirements for different business structures,” Friedman said. “Depending on where you set up, there could be different requirements at the municipal level as well. As you choose your structure, understand the state and industry you’re in. It’s not ‘one size fits all,’ and businesses may not be aware of what’s applicable to them.”

The structures discussed here apply only to for-profit businesses. If you’ve done your research and you’re still unsure which business structure is right for you, Friedman advises speaking with a specialist in business law.

Max Freedman and Matt D’Angelo contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.

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Sole Proprietorship

Partnership, limited liability company (llc), corporation, templates and examples to download in word and pdf formats, how to choose the best legal structure for your business.

Deciding on a specific type of legal structure when you've just started your business journey can be complicated. It's hard to know exactly what the differences are, how the different structures can benefit you, and what any risks might be.

Luckily, it doesn't have to be so complicated! In fact, we've published this guide on everything you need to know about choosing the right legal structure for your business to help you along the way.

The most common business structures are sole proprietorships, partnerships, limited liability companies, and corporations. Here, you'll learn about each one in detail to help you choose the right fit for your business, as well as a non-profit, which you might consider for a new charitable business.

What type of structure you choose will make a big difference over the life of your business. It can have significant tax implications, as well as implications for your personal level of risk. It is not a decision that should be made lightly.

Below, we examine each common business structure in detail.

A sole proprietorship is the simplest type of business structure and the easiest to form and maintain. A sole proprietorship is basically a business that is you - and you are the business! For example, if you were a freelance writer on the internet and wanted to operate as a sole proprietorship, you wouldn't have to do anything at all to already be up and running, as long as you wanted to operate under your name.

In a sole proprietorship, no separate legal entity is created. If you'd like to operate under a special name, like a new business name or just a different name other than your own legal name, you would file what is called a "Doing Business As" (or DBA, as it is referred to) document with your state. All this document does is tell the state that you, as a legal person, are doing business under the name you've chosen for your business.

Because of the simplicity of the sole proprietorship, the way that your taxes are handled is also fairly simple. The taxes of the sole proprietorship would "pass through" to you, meaning you report any profit or loss on your own taxes and don't have to go through a separate process for the business.

One of the biggest drawbacks to a sole proprietorship is that you can be personally on the hook for any business liabilities - whether you make a big financial loss one year or whether your business gets sued. That's because in a sole proprietorship, there is no separation between you as a person and you as a business, so anything you own, in terms of assets, may be up-for-grabs by any creditors or the public to whom you are facing liability.

Another big drawback is that you may have a hard time raising any money. In a sole proprietorship, you can't issue stock in the company, so it could be hard to attract capital investors. You also may not have much success getting a bank loan, because banks generally don't favor lending to sole proprietorships.

How to form a sole proprietorship

To create a sole proprietorship, as mentioned above, you wouldn't have to file anything with your state other than a DBA, if you'd like. There can be fees associated with the DBA form, which vary per state. But keep in mind you might have separate documents to file, depending on your business. These could include special licenses or permits.

Why you might choose a sole proprietorship

A sole proprietorship is a good idea if you are a solopreneur with a small business and you are planning to keep it that way. It's very easy to form (you either have to file no documents or just one DBA) and you can get focused on starting your business right away. It's also very cheap to get started.

Especially if your business may not be facing a high level of risk, a sole proprietorship might be for you. A sole proprietorship wouldn't be recommended if, let's say, you ran a business that dealt with large amounts of other people's money on a regular business, or as a health professional, or really any area where the risk of being liable for something serious is high.

Final overview

Sole proprietorship benefits:.

1. It's cheap and easy to form.

2. Taxes are easy to keep track of.

3. You still have the option to have employees if you would like.

Sole proprietorship drawbacks:

1. There is a high level of personal risk for liabilities.

2. You may have difficulty raising funds.

If a sole proprietorship is the simplest business structure for an individual looking to operate their own small business, a partnership might be considered that for two or more people.

In a partnership, the two or more "partners," as they are called, each generally have a say in how the company runs (depending on the structure of the partnership) and each own a piece of the company, including its profits and losses.

In a partnership, you can also have different types of partners - general partners and limited partners - or you can have just a general partnership with all the same types of partners. General partners are equally responsible for everything: all the profits, any potential losses, any liabilities that might come up, and general responsibility for the company, including the amount of work done. Limited partners are those that are basically only partners for a financial reason, in that they invest but have not much else to do with how the company runs. Overall, partnerships with limited partners are a little rarer, as people like to go into partnerships with equal weight.

Imagine a situation where two people decide to open a yoga studio together. Their structure of choice may be a partnership.

A joint venture, formed with a Joint Venture Agreement , is a type of general partnership that only lasts for one specific project or a limited amount of time.

Joint venture is a generic term for any business relationship between two parties for a limited time. A joint venture could be for a brand new business, or just one marketing promotion, or even just a project between two already-formed businesses. In a joint venture, the parties could decide to form a temporary partnership, with a Partnership Agreement , but they don't have to: they can also retain their fully separate legal identities and just operate with a Joint Venture Agreement.

Taxes in a partnership can pass through, just like in a sole proprietorship.

The formation of a partnership, however, can be very complicated. Many states have adopted something called the Uniform Partnership Act, which makes the written Partnership Agreement very important. Partners will need to figure out everything from how they'll run the day-to-day business to what happens if the business folds or if someone wants to leave.

The Uniform Partnership Act is similar to a model statute or model law, in that it was drafted to be applicable uniformly, but states each had to individually adopt it. The Uniform Partnership Act, or UPA, gives guidance on how business partnerships should be formed, governed, and dissolved.

How to form a partnership

As mentioned above, the basis of partnership formation is the written Partnership Agreement, which sets out all of the details of the business relationship between the parties. Unless you also want to file a DBA, you won't need to file any partnership documents with your state.

Keep in mind, however, that as above, you may need specific licenses or permits for your particular business model.

Why you might choose a partnership

A partnership is a good idea if you are running a small business with another individual or a few individuals. As with a sole proprietorship, it's very easy to form (you either have to file no documents with the state or just one DBA) and you can get focused on starting your business right away. It's also very cheap to get started, just like a sole proprietorship.

If you're not sure of the trustworthiness of your potential partners, however, a partnership may not be the way to go for you, as you could be exposing yourself to a high level of risk just because of the actions of your partners. Either way, however, you should always have a well-written Partnership Agreement in place.

Partnership benefits:

1. It's relatively cheap to form.

2. Generally, unless you have a DBA, you won't need to file with the state.

3. Taxes pass through.

Partnership drawbacks:

1. The Partnership Agreement can be a complicated document.

2. It can be very risky if your partners are not trustworthy.

A Limited Liability Company, or LLC for short, has largely become the preferred form of structure for many small- to medium-sized businesses, and even for a lot of solo business owners. The reason for this is because it has a lot of benefits of other types of business structures, without as much of the risk.

In an LLC, there is a lot of customization available for how the business is run. LLCs can be used for small businesses or large ones. You can form an LLC just for yourself or have an LLC with many different members. The main benefit of an LLC is that your personal assets are shielded from liability - hence the name, "limited liability" company.

Taxes still pass through in LLCs. If you are a single-member LLC, the taxation is similar to a sole proprietorship. In a multi-member LLC, you are taxed on just your portion of the profits.

LLCs can, therefore, be formed for almost any purpose - for a single freelance artist or a group of people looking to open a bakery together, for example. LLCs can even be formed for professionals, like a legal or medical practice.

Since all business structures are formed according to the state, and not federal, government, the requirements to file and run the business, especially for the more complicated structures, can vary.

Forming an LLC is more complicated than either a sole proprietorship or partnership, as it involves filing specific documents in a specific form with the state.

How to form an LLC

An LLC is generally filed with your state by drafting Articles of Organization , the creation document for the company. Before this, you'll also have to ensure that you have a business name that will work by running a search on your proposed business name with your state's Secretary of State (usually this can be done easily on the Secretary of State website). An Operating Agreement is also a very good idea to have drafted (though it is not required), especially if you have more than one LLC member.

If you would like to operate under a special name for your LLC, you may also have to file a DBA.

Why you might choose an LLC

An LLC is a good idea when you want to have the maximum amount of liability protection for your business, either as a solo business owner or as part of a team and you don't want to build a corporation (more on that below). It's also a good idea if you still want the simplicity of taxation and the ability to organize your business as you like.

Whenever you file your LLC, make sure you keep all of the records separate to ensure your liability protection. Your organizational records, banking records, and, if applicable, personnel records all need to be records of the LLC specifically, not mixed in with your own personal records.

LLC benefits:

1. You are protected from personal liability.

2. Taxes pass through.

LLC drawbacks:

1. It's a little more expensive and complicated to form than a sole proprietorship or partnership.

2. Your liability is subject to the separateness of all of your records.

A corporation is generally the most complex legal structure , involving a lot of time and resources at its formation and then on through its life. A corporation is its own separate entity - often sometimes compared to a business version of a legal "person." In other words, the corporation is its own body separate and apart from you or any of the other owners, called "shareholders."

A corporation can take one of three main forms: the C corporation, the S corporation, or the lesser-known B corporation.

Most big companies in the United States, like Fortune 500 companies, are organized into a C corporation. It's the "traditional" corporate structure that people think of when they think of corporations. In a C corp, there are owners, called shareholders as noted above, who all put money into the business and receive shares, or stock, in return. The corporation gets taxed on its own - but so do any shareholder earnings, which means that with corporations, there is what's called "double taxation." All that means is that money into the corporation gets taxed as does money to the shareholders. In a C corp, there is almost no personal liability of the shareholders. Additionally, there is the possibility of the shareholders earning a lot of income if the corporation ever goes public.

The S corporation is a slightly different entity, similar to the C corp, but with the possibility of pass-through taxation. As discussed in the other business forms, what this means is that profits and losses can go straight to the owner or owners of the S corp, making it a good idea for small businesses. The S corp is a little more limited than the C corp in most states, however, as it can usually only be held by a certain limit of private individuals (for example, up to 25 owners that all have to be real people, rather than legal entities).

A B corporation is a lesser-known structure than the others and that's because it won't be applicable to most people. B Corps are designed for those that want to form essentially a C corporation but for some social good. The B stands for "benefit." A B Corp is very similar to a C Corp, except that sometimes the corporation receives certain tax breaks.

How to form a Corporation

Corporations are formed by filing a significant document covering the details of the corporation with the Secretary of State, called the Articles of Incorporation . Most corporations need to have a viable business name and go on to obtain a tax identification number from the Internal Revenue Service.

It's a good idea to also draft a document called the Corporate Bylaws , which set down the governing rules for the corporation.

Why you might choose a Corporation

You might decide to file a corporation if you are looking for a lot of growth potential for your business or if you knew you wanted to start bringing on shareholders right away. A corporation is a good idea if you plan to hire a lot of employees, as well.

It's probably not a good idea for very small business or individuals who don't plan to grow at a very high rate, as the expense of setting up and maintaining the structure, as well as the double taxation, would easily make it more cumbersome than its worth.

Corporation benefits:

2. Raising capital may be easier here than any other business form.

Corporation drawbacks:

1. It's more expensive and complicated to form than any other business form.

2. It's also complicated and expensive to maintain.

3. Double taxation may end up costing you more.

A non-profit is different than all of the other business structures - and the difference is in its name. Non-profits are created for a different reason than just generating profit; usually, the reason is some kind of social cause.

Non-profits are tax-exempt entities, and because of this, they need to have a specific purpose that is either charitable, religious, or educational.

How to form a Non-profit

Forming a non-profit requires Articles of Incorporation with the Secretary of State. You'll then need to file specifically to obtain tax-exempt status from both your state and the federal government.

If you plan to have multiple people in your non-profit, drafting Non-Profit Bylaws is a good idea.

Why you might choose a Non-profit

The option for a non-profit is really only there if you have a business that is for charitable, religious, or educational purposes. Once you decide that you do, then you must ensure you really aren't running a business for profit and that the primary purpose is for another reason. If those requirements are met, the non-profit is the best choice for you.

If you'd like to run a business for a social cause, but still want to have the main goal of earning a profit, a B corporation might be better suited to your needs. With a non-profit, one of the main activities will simply have to be fundraising to keep the business afloat. In a B corporation, however, you can do good and still turn a profit.

Non-profit benefits:

1. Tax-exempt status can be obtained.

2. It's the best structure for any primarily charitable business.

Non-profit drawbacks:

1. You must meet the requirements to open a non-profit.

2. Your business can't be run primarily to earn a profit.

When deciding what type of structure might be best for you, ask yourself the following questions:

1. How much time and effort am I willing to put in to set up the business at the beginning?

2. How much time and effort am I willing to put in to maintain the business over time?

3. Is pass-through taxation important to me?

4. What will be personal liabilities be?

5. Am I interested in easily raising capital?

Once you've asked yourself these questions, with the knowledge obtained from this guide, you'll be in a great place to decide what the best structure is for your needs.

About the Author: Anjali Nowakowski is a Legal Templates Programmer at Wonder.Legal and is based in the U.S.A.

  • Partnership Agreement
  • Articles Of Organization
  • Non-Profit Bylaws
  • Corporate Bylaws
  • Articles Of Incorporation

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10.6 Legal Forms of Business

Making a profit is a key goal for the overwhelming majority of firms. How a firm’s owners benefit from profits and suffer from losses varies across different legal forms of business. Below we illustrate how profits and losses are treated within different business forms.

Choosing a Form of Business

The legal form a firm chooses to operate under is an important decision with implications for how a firm structures its resources and assets. Several legal forms of business are available to executives. Each involves a different approach to dealing with profits and losses (Table 10.9).

There are three primary considerations that firms should take into account when deciding which legal form of business should be chosen. These are:

  • How taxes are handled
  • How liability of the owners is handled
  • How easy to set up and operate the entity

There are five basic forms of business entities:

  • Sole Proprietorship
  • Partnership
  • Corporation
  • S Corporation
  • Limited Liability Company—LLC

A sole proprietorship is a firm that is owned by one person. From a legal perspective, the firm and its owner are considered one and the same. On the plus side, this means that all profits are the property of the owner (after taxes are paid, of course). On the minus side, however, the owner is personally responsible for the firm’s losses and debts. This presents a tremendous risk. If a sole proprietor is on the losing end of a significant lawsuit, for example, the owner could find his personal assets forfeited. Most sole proprietorships are small and many have no employees. In most towns, for example, there are a number of self-employed repair people, plumbers, and electricians who work alone on home repair jobs. Also, many sole proprietors run their businesses from their homes to avoid expenses associated with operating an office. Along with the disadvantage of personal liability for the owner, sole proprietorships enjoy two advantages. Taxes on profits are assessed at the owner’s personal tax rate. Also, this is the easiest form of business to set up and operate.

In a partnership , two or more partners share ownership of a firm. A partnership is similar to a sole proprietorship in that the partners are the only beneficiaries of the firm’s profits, but they are also responsible for any losses and debts. Partnerships can be especially attractive if each person’s expertise complements the others. For example, an accountant who specializes in preparing individual tax returns and another who has mastered business taxes might choose to join forces to offer customers a more complete set of tax services than either could offer alone.

From a practical standpoint, a partnership allows a person to take time off without closing down the business temporarily. Sander & Lawrence is a partnership of two home builders in Tallahassee, Florida. When Lawrence suffered a serious injury a few years ago, Sander was able to take over supervising his projects and see them through to completion. Had Lawrence been a sole proprietor, his customers would have suffered greatly. However, a person who chooses to be part of a partnership rather than operating alone as a sole proprietor also takes on some risk; your partner could make bad decisions that end up costing you a lot of money. Thus developing trust and confidence in one’s partner is very important. As with the sole proprietorship, the owners and the partnership are considered as one. Being personally liable for the debts and actions of the partnership and the partner(s) is certainly a downside, however setting up a partnership is relatively easy. Taxes are also paid at the partners individual rate, a tax advantage generally.

Most large firms, such as Southwest Airlines, are organized as corporations . A key difference between a corporation and a sole proprietorship or partnership is that corporations involve the separation of ownership and management. Corporations sell shares of ownership that are publicly traded in stock markets, and they are managed by professional executives. These executives may own a significant portion of the corporation’s stock, but this is not a legal requirement.

Another unique feature of corporations is how they deal with profits and losses. Unlike in sole proprietorships and partnerships, a corporation’s owners (i.e., shareholders) do not directly receive profits or absorb losses. Instead, profits and losses indirectly affect shareholders in two ways. First, profits and losses tend to be reflected in whether the firm’s stock price rises or falls. When a shareholder sells her stock, the firm’s performance while she has owned the stock will influence whether she makes a profit relative to her stock purchase. Shareholders can also benefit from profits if a firm’s executives decide to pay cash dividends to shareholders. Unfortunately, for shareholders, corporate profits and any dividends that these profits support are both taxed. This double taxation is a big disadvantage of corporations. Corporations (also called C corporations) are also the most difficult form of business to set up and have a number of regulations to comply with.

A specialized type of corporation called an S corporation is designed for smaller companies.. Much like in a partnership, the firm’s profits and losses are reported on owners’ personal tax returns in proportion with each owner’s share of the firm, so double taxation is avoided. Although this is an attractive feature, an S corporation would be impractical for most large firms because the number of shareholders in an S corporation is capped, usually at one hundred. In contrast, Southwest Airlines has more than ten thousand shareholders. For smaller firms, such as many real-estate agencies, the S corporation is an attractive form of business. S corporations also provide liability protection for their stockholders as C corporations do, and are easier to set up and operate than C corporations.

A final form of business is very popular, yet it is not actually recognized by the federal government as a form of business. Instead, the ability to create a limited liability company (LLC) is granted in state laws. LLCs mix attractive features of corporations and partnerships. The owners of an LLC are not personally liable for debts that the LLC accumulates (like in a corporation) and the LLC can be run in a flexible manner (like in a partnership). When paying federal taxes, however, an LLC must choose to be treated as a corporation, a partnership, or a sole proprietorship. Many home builders (including Sander & Lawrence), architectural businesses, and consulting firms are LLCs. The ease of setting up and operating an LLC is similar to a sole proprietorship or partnership.

Section Video

Finding the Right Business Structure [03:58]

The video for this lesson further explains the various forms of business ownership.

You can view this video here: https://youtu.be/A-Up-JUkaj0 .

Key Takeaway

  • The five major forms of business in the United States are sole proprietorships, partnerships, LLCs, and C and S corporations. Each form has implications for how individuals are taxed, the personal liability of the owners, and how resources are managed and deployed in the set up and operations.
  • Why are so many small firms sole proprietorships?
  • Find an example of a firm that operates as an LLC. Why do you think the owners of this firm chose this form of business over others?
  • Why might different forms of business be more likely to rely on a different organizational structure?

Video Credits

John Deere. (2016, May 26). Finding the right business structure [Video]. YouTube. https://youtu.be/A-Up-JUkaj0 .

The simplest form of business, with only one owner who is personally responsible for the liabilities of the business, whereby the owner and the business are considered one and the same

A business that is not incorporated with two or more owners/partners, personally responsible for the liabilities of the business

A legal business entity that separates the owners from the liabilities of the business. Owners are issued stock, and profits are taxed twice, at the corporate and individual owner levels

A special form of a corporation for smaller companies, with a limited number of owners/stock holders who are separated from the liabilities of the business. Profits are only taxed at the individual owners level.

A limited liability company with some of the ease of operation of a sole proprietorship or partnership but owners are separated from the liabilities of the business

Strategic Management Copyright © 2020 by Reed Kennedy is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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Types of Business Structures Explained

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13 min. read

Updated January 5, 2024

The choice you make about what type of business structure is appropriate for your company will affect how much you pay in taxes, the level of risk or liability to your personal assets (your house, your savings), and even your ability to raise money from angel investors or venture capitalists.

So, the structure you choose is significant.

This guide will explain the basics of common business structures, but we can’t tell you exactly which structure you should choose—if you need that kind of advice, you should consult a lawyer or an accountant.

  • Sole proprietorship

The simplest business structure is the sole proprietorship. If you don’t create a separate legal entity, your business is a sole proprietorship. 

The main advantage of the sole proprietorship is that it’s relatively simple and inexpensive. The disadvantage is that it doesn’t create a legal separation between you and your personal assets and business assets. If you’re sued or your business folds—your personal assets are fair game for creditors and in terms of legal liability.

Who is a sole proprietorship for?

A sole proprietorship is ideal for self-employed individuals like personal trainers offering individual coaching or artists selling unique items on platforms like Etsy.

Key considerations

  • Cost-effective setup: The primary expense is usually the DBA (“doing business as”) registration. Some states may require public notice, like a newspaper ad. Generally, the total cost is below $100.
  • Simplified taxation: Sole proprietorships are “pass-through” tax entities. Profits and losses are reported directly on the owner’s taxes, necessitating only a few additional tax forms if you’re the sole worker.
  • Hiring employees is possible: Being a “sole” proprietor doesn’t restrict hiring. If you employ others, tax processes become slightly more intricate.
  • Limited ways to raise funding: You can’t sell company stock, limiting fundraising avenues.
  • Potential loan difficulties: Banks might hesitate to grant loans to sole proprietorships due to perceived credibility issues.
  • Full personal liability: If the business faces debt or legal issues, your personal assets, including your home, car, and savings, are vulnerable.

Dig deeper:

Should you register as a sole proprietorship?

Explore the pros and cons of incorporating as a sole proprietorship.

How sole proprietorships are taxed

Understand how registering as a sole proprietor impacts your taxes.

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  • Partnerships

Still a relatively simple business structure, a partnership involves two or more individuals sharing ownership of their new business. They’ll contribute to the business in some way and share in profits and losses.

Partnerships are harder to describe because they change so much. State laws govern them, but the Uniform Partnership Act has become the law in most states. That act, however, mainly sets the specific partnership agreement as the real legal core of the partnership so that the legal details can vary widely.

Usually, the income or loss from partnerships passes through to the partners without any partnership tax. The agreements can define different levels of risk, which is why you’ll read about some partnerships with general and limited partners, with different levels of risk for each. Your partnership agreement should clearly define what happens if a partner withdraws, buy and sell arrangements for partners and liquidation arrangements if necessary.

What are the types of partnerships?

  • General partnership: Assumes equal involvement of all parties in profits, liabilities, and duties. Any intentional imbalance should be specified in the partnership agreement.
  • Limited partnership: Suited for partners in an investor role with limited involvement in daily operations. This structure is more complex and less common.
  • Joint venture: Designed for a single project or a limited duration, operating similarly to a general partnership.

Who is a partnership for?

A partnership is similar to an extended sole proprietorship and is ideal for two or more individuals wanting to start a business jointly. 

To make the partnership more effective, you and your partners should have skillsets, connections, or other unique benefits that complement each other. 

For example, a personal trainer and nutritionist building an online fitness program. One entrepreneur has experience building an exercise regiment with clients. The other understands how to create balanced meal and supplement recommendations. 

They have unique but complementary knowledge that, when combined, creates a more valuable product/service.

  • Partnership agreement: While not mandatory, it’s advisable to draft a partnership agreement, ideally reviewed by legal counsel, to clarify roles and responsibilities, ownership, and what will happen if a partner wants to leave the partnership.
  • Tax implications: Partnerships are “pass-through” entities, meaning profits and losses are directly passed to the partners. Refer to the IRS for partnership tax details.
  • Additional costs: Since it’s a good idea to have a lawyer look over your partnership agreement, don’t forget to factor in this added expense.
  • Trust in partnership: Ensure your partner is trustworthy, as partners share responsibility for business decisions and debts. A well-drafted partnership agreement can prevent future conflicts.

How to create a business partnership agreement

Even if you’re not in an official partnership, you should consider drafting a partnership agreement. Doing so will clearly define rights and responsibilities and help you amicably resolve any disputes.

How partnerships are taxed

Understand how registering as a partnership impacts your taxes.

Plan for changes with a buy-sell agreement

What will you do if you or your partner quits, sells their portion of the business, or passes away?

How to find the right business partner

A partnership is more than a legal structure. It’s a relationship between entrepreneurs who share a passion for an idea and bring unique skill sets. So, how do you find the right person to make your partnership thrive?…

Traits to look for in a business partner

What makes a good business partner? If you’re considering someone with the following traits, you likely have a good fit.

How many partners should you have?

What’s the ideal number of business partners? The right mix of people and skillsets can lead to tremendous business growth. But too many may lead to disaster.

What to do when your business partner is your life partner

Should your significant other be your business partner? Learn your legal options and how to find the right ownership fit for your business and relationship.

  • Limited liability company

Should your business fall on hard times, does the idea of being held personally responsible for all losses sound intimidating?

It’s understandable—plenty of would-be entrepreneurs shudder at the thought of the bank seizing their personal assets should the business go south.

A limited liability corporation (or LLC) is, in some ways, the best of both worlds. It allows for the flexibility of a partnership or sole proprietorship but, as the name suggests, limits the liability of those involved, similar to a corporation. An LLC is usually a lot like an S corporation. It offers a combination of some limitations on legal liability and some favorable tax treatment for profits and transfer of assets.

Who is a limited liability corporation for?

An LLC is ideal for those wary of personal liability in business. If you possess significant personal assets or operate in a lawsuit-prone industry—an LLC safeguards your personal finances. 

  • Complexity: While offering more protection, an LLC is harder to establish than a sole proprietorship or partnership.
  • Tax benefits: LLCs maintain “pass-through” tax status, meaning you’re taxed only on your profit share, which is reported on personal taxes. 
  • Single-member LLCs: Most states allow single-person LLCs, making it a potential alternative to sole proprietorships.

How to form a limited liability company

Interested in forming an LLC? Here are the steps you’ll need to take.

How to create an LLC operating agreement

Set the rules for how your LLC will operate, including the management structure, individual responsibilities, ownership percentage, and other important information.

LLC costs and fees explained

Make sure you’re aware of all the costs and fees associated with forming an LLC.

How LLCs are taxed

Understand how registering as an LLC impacts your taxes.

  • Corporations

Shareholders, a more complex legal structure, and more intricate tax requirements are all characteristics of a corporation.

Corporations are either the standard C corporation, the small business S corporation, or the benefit corporation or B corp. The C corporation is the classic legal entity of the vast majority of successful companies in the United States.

Corporations can switch from C to S and back again, but not often. The IRS has strict rules for when and how those switches are made. You’ll almost always want to have your CPA, and in some cases, your attorney, guide you through the legal requirements for switching.

Who is a corporation for?

Corporations are best suited for larger, established businesses with multiple employees, plans for rapid scaling, or intentions to trade or attract significant external investments publicly. A corporation might not be the right choice if you’re a small business owner or work with a small team.

What are the types of corporations?

C corporation.

What we typically think of when we refer to corporations, where all shareholders combine funds and are then given stock in the newly formed business. 

A C corp is a separate tax entity, meaning your business can deduct taxes. It also means that earnings can be taxed twice, as they are concerning your business and your personal taxes if you take income as dividends. However, good tax planning can often minimize the impact of double taxation.

Most lawyers would agree (but verify this with your lawyer who is familiar with your unique business) that the C corporation is the structure that provides the best shielding from personal liability for owners, and provides the best non-tax benefits to owners. Many companies with ambitions of raising major investment capital and eventually going public consider the C corporation.

S corporation

An S corp is similar to a traditional C corporation, with one major difference: Profits and losses can be “passed through” to your personal tax return without being taxed separately first.

In practical terms, the owners can take their profits home without first paying the corporation’s separate tax on profits. In most states, an S corporation is owned by a limited number of private owners (25 is a common maximum), and only individuals (not corporations) can hold stock in S corporations.

To become an S corp, you must first set your business up as a corporation within your state and then request S corp status. The IRS instructions for Form 2553 (which you’ll need to file to become an S corp) can help you determine if you qualify.

B corporation

Does your company have a dedicated social mission, a good cause built into its foundation that you’d like to continue furthering as your company grows? If so, you might consider becoming a B corporation, which stands for “benefit corporation.” 

However, the name is a bit misleading; a B corp isn’t an entirely different structure than a regular C corporation. It’s a C corp vetted and approved for B corp status. Some states give tax breaks to B corps, and it’s a great way to stand behind a cause.

So, why would you choose a B corp over a nonprofit? The biggest difference is in ownership—with a nonprofit, no owners or shareholders exist. A B corp, which is still a type of corporation, still has shareholders who own the company. So, a B corp has a social mission but is still a for-profit company (as opposed to a nonprofit) with an end goal of returning profits to the shareholders.

  • Liability: Corporations offer the most protection for personal assets.
  • Capital raising: The ability to sell stock enhances investment potential.
  • Taxation: Corporate taxes are separate (except for S corps), but the structure can lead to double taxation, especially for C corporations.
  • Complexity: Establishing a corporation is more intricate than other business structures, requiring more paperwork and formalities.

How to form a corporation

Follow these ten steps to incorporate as a C, S, or B corporation.

How are corporations taxed?

Understand how registering as a corporation impacts your taxes.

S corporation basics

Should you choose an S corp as the legal structure for your business? Learn the basics and what alternatives are available.

B corporation basics

Should you choose a B corp as the legal structure for your business? Check out this detailed overview of how this business entity functions and the pros and cons you’ll contend with.

A nonprofit is a “not-for-profit” business structure, meaning the business does not exist to generate revenue for shareholders, but rather funnel business revenue into a social mission, cause, or purpose.

Who is a nonprofit for?

Nonprofits cater to those with missions centered on charitable, educational, scientific, or religious purposes. Examples include homeless shelters, conservation groups, arts centers, and educational institutions.

What’s the difference between a nonprofit and a cooperative?

Like a nonprofit, a cooperative is a business with a social mission that doesn’t divide income between shareholders but toward a cause or purpose. However, while some states view nonprofits and cooperatives as the same, a cooperative differs because the members own it, referred to as “user-owners.”

If you plan on organizing your business to be democratically owned, looking into the cooperative business structure might be a good idea to look into the cooperative business structure .

  • Complex setup: Establishing a nonprofit requires steps similar to forming a corporation, including filing articles of incorporation, creating bylaws, and organizing board meetings.
  • Fundraising will be your main priority: Nonprofits generally rely on fundraising and grants to keep a flow of income into their business.

What is a nonprofit corporation and how to start one

Learn the basics of setting up a nonprofit corporation.

How to earn income as a nonprofit corporation

Learn how related and unrelated business activities can generate revenue for a nonprofit corporation.

  • Making your business legally compliant

Choosing a business structure is the first legal step you’ll take. Your choice will impact your taxes, fundraising, and personal liability. 

Tim Berry, founder of Palo Alto Software (maker of Bplans) reminds small business and startup founders that choosing a business entity or structure is something to take seriously. He says:

“Make sure you know which legal steps you must take to be in business. I’m not an attorney, and I don’t give legal advice. I strongly recommend working with an attorney to review the details of your company’s legal establishment and licensing. The trade-offs involved in incorporation versus partnership versus other structures are significant. Small problems developed at the early stages of a new business can become horrendous problems later on. In this regard, the cost of simple legal advice is almost always worth it. Don’t skimp on legal costs.”

TLDR: Take time, carefully weigh your options, and consult a legal professional.

Once you’ve chosen, check off the remaining legal requirements to start a business. While you can complete most of these in any order, here are a few suggestions.

  • Apply for a federal and state tax ID
  • Obtain licenses and permits
  • Register your business name

Clarify your ideas and understand how to start your business with LivePlan

Content Author: Kody Wirth

Kody Wirth is a content writer and SEO specialist for Palo Alto Software—the creator's of Bplans and LivePlan. He has 3+ years experience covering small business topics and runs a part-time content writing service in his spare time.

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How to choose the right business structure for you

Which legal business structure makes the most sense for you often depends on your future plans for your company.

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legal form of business in business plan

by   Marcia Layton Turner

​Marcia Layton Turner writes regularly about small business and real estate. Her work has appeared in Entrepreneur, B...

Read more...

Updated on: April 5, 2023 · 4min read

Yor business structure opptions

Four factors to consider.

Many small businesses are started at kitchen tables or in garages, without much thought about taxes, liability, complexity, or future plans. However, those four issues play a major role in determining which structure makes the most sense for your business.

"A business structure is the legal form of your business," says Rob Stephens, founder of CFO Perspective . "This legal form determines what licensing you need , what taxes you will pay, and what legal rights your business has."

Every entrepreneur's situation is different, which makes choosing a business structure a very personal decision. But remember that you can opt to change your company's existing structure if you realize that another format would be more advantageous to you or your company.

freelance-designer-working-on-laptop

In the U.S., you can choose from four basic types of business structures. Each type of legal entity has its pros and cons .

  • Sole proprietorship. "You're automatically considered to be a sole proprietorship if you do business activities but don't register as any other kind of business," Stephens says. You don't even have to file paperwork to officially form the business unless you're doing business under a different name, in which case, you need to file a DBA form . David Ciccarelli, founder and CEO of Voices , launched his business as a sole proprietorship because, he says, "it's fast, easy, and, let's be honest, the least expensive option available." The downside is that banks are more reluctant to lend money to sole proprietorships and you can't sell stock, Stephens notes.
  • Partnership. When Ciccarelli and his wife became business partners, they "set up a new entity because we changed the name and wanted to create something new that represented our collective ideas, a true partnership." Partnerships are an option when a business has multiple owners.
  • Limited liability company (LLC). LLCs are a popular choice, says Stephens, because they are "super simple to form" and have no limits on the number of shareholders. That is important if you intend to pursue investors. Deven Patel, founder and CEO of web domain marketplace Alter , has experience making this choice. "I'm a serial entrepreneur who started a number of businesses over the years using every structure imaginable," he says. "The LLC structure is great for small businesses as it's super simple to manage with less paperwork to deal with." Roy Harmon, owner of Advertoscope , went with an LLC because "some of my clients seemed to see that as a sign of credibility versus a sole proprietorship."
  • Corporations. There are two types of corporations: C corporations and S corporations. "Every corporation that is formed is a C corporation by default," says Charles Read, CEO of GetPayroll . "The S corporation election (made by filing a Form 2553 ) is a tax election only." S corporations are popular with small business owners because they are not subject to double taxation like C corporations are—profits flow through to the owner without taxation at the corporate level. S corporations are limited to 100 shareholders, however, and only "natural persons" can hold ownership stakes—meaning U.S. citizens.

When choosing which business structure is most appropriate for your short- and long-term plans, you'll want to weigh the following issues, Stephens recommends.

  • Complexity. How complicated does your business need to be now and in the future? Do you intend to stay a one-person show, or do you hope to build a business empire and sell the venture to investors in a few years? Those two scenarios lead to two totally different choices—sole proprietorship at one end and C corporation at the other.
  • Legal protection. Being able to separate your business assets from your personal finances is advantageous if your business carries with it significant liability—such as from customers visiting your store or the product you're manufacturing causing harm. The more protection you want, the more formal you'll want your business structure to be. "I always recommend that my clients (or those individuals asking for advice) choose either a corporation or an LLC for the liability protection it provides," Read says. Both of these structures shelter the owner's personal assets and wealth from outside claims and "is the cheapest liability policy I know of that a person can buy when they go into business," he says. Sole proprietorship and partnerships do not provide that kind of protection.
  • Taxes. Sole proprietorships, partnerships, LLCs, and S corporations are pass-through entities, Stephens explains, which means profits are only taxed when they are paid out to the owner(s). However, a C corporation is taxed both as a company and when payouts are made to shareholders.
  • Number and type of owners. If your plan is eventually to go public, you may want to establish your business as a C corporation from the start. However, if you're building a business that you don't expect to take public, you may want to choose based on the number of owners you anticipate. A sole proprietorship has one owner, while a partnership, LLC, and S corporation can have multiple owners.

Entrepreneur Vinay Amin, founder of Eu Natural , says, "The best way to choose a legal business structure is to assess your personal risk potential, provide yourself with acceptable asset protection, and optimize the opportunity for sourcing investment for growth."

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The road to the creation of a new business is a long one that is often filled with unexpected challenges and accomplishments. While the unpredictable nature of starting a business can be appealing to some, for many there is value in developing a plan to help guide new owners through the first months and years of operation. For this reason, one of the most important steps that entrepreneurs can take when starting out is to carefully and thoughtfully develop a comprehensive business plan.

What Is a Business Plan?

A business plan is both a map and a marketing tool for your business. A business plan helps you carefully set forth the purpose, goals, and priorities of your new business, along with guideposts to help ensure that you stay on the right path. For instance, a business plan may require you to consider what the primary purpose of your business is, or the good or service you intend to provide, who your potential customers are, and how you intend to reach them in an effective and efficient manner. A business plan also allows you to make an honest evaluation of the current status of your business and what you will need to do to get to where you would like to be. This includes taking the time to compile your business balance sheet, analyze existing income and expenses, and determine anticipated financial needs.

Creating a detailed business plan can help business owners acquire outside funding .

In addition, a business plan serves as a marketing tool for new business owners who are attempting to gain financial backing, operational support, or mentoring for their new business. The financial aspects of a business plan lets potential funders or lenders analyze your current income streams and the likelihood of repayment, while the detailed explanation of your business objectives and operational plans helps to convince interested parties that you have taken the time to carefully plan your business endeavors and are invested in the success of your company.

How to Write a Business Plan

There is no one specific way to write a business plan. However, there are key components that most business plans should include, and these are good starting points when working on your own plan. It may also be worth reaching out to an experienced corporate attorney to help you review and revise your business plan before presenting it to others in the business community.

Business plans typically start with a summary of the business and its objectives, and then they describe the operations of the business, the good or service it will be providing, and potential income streams in more detail. Business plans should also include a detailed description of the proposed management structure of the business, including officers or directors and possibly the envisioned composition of the board. Additionally, business plans typically include extensive financial documentation, such as balance sheets, income projections or growth model projections, any pending loan applications, tax returns of the entity, and copies of any relevant legal agreements. If the business has already been in operation for some time, the business plan may also include financial records for the months of operation.

  • Summarize the business and its objectives
  • Outline how the business is organized and managed
  • Describe what the business sells
  • Identify potential income streams
  • Include financial information, such as balance sheets and projections

Using Your Business Plan

Once you have completed a business plan that you are happy with, you will find that you will often continue to refer to your plan even months or years after it was initially completed. In the initial stages, you can use your business plan to attract investors, partners, board members, or other advisors who are interested in the model you have proposed and would like to contribute to its success. As your business develops, you can continue to refer to the plan to guide you in business decisions, as well as to track timelines or certain goals that you hoped to meet. Even after your business is well-developed, returning to your business plan can help guide your yearly planning for your company, allowing you to modify your goals as they are achieved.

Last reviewed October 2023

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Business LibreTexts

9.5: Legal Forms of Business

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Learning Objectives

  • Know the three basic legal forms of business.
  • Know the two specialized types of corporations.

Table 9.10 Business Forms

Making a profit is a key goal for the overwhelming majority of firms. How a firm’s owners benefit from profits and suffer from losses varies across different legal forms of business. Below we illustrate how profits and losses are treated within different business forms.

Choosing a Form of Business

The legal form a firm chooses to operate under is an important decision with implications for how a firm structures its resources and assets. Several legal forms of business are available to executives. Each involves a different approach to dealing with profits and losses (Table 9.10).

There are three basic forms of business. A sole proprietorship is a firm that is owned by one person. From a legal perspective, the firm and its owner are considered one and the same. On the plus side, this means that all profits are the property of the owner (after taxes are paid, of course). On the minus side, however, the owner is personally responsible for the firm’s losses and debts. This presents a tremendous risk. If a sole proprietor is on the losing end of a significant lawsuit, for example, the owner could find his personal assets forfeited. Most sole proprietorships are small and many have no employees. In most towns, for example, there are a number of self-employed repair people, plumbers, and electricians who work alone on home repair jobs. Also, many sole proprietors run their businesses from their homes to avoid expenses associated with operating an office.

In a partnership , two or more partners share ownership of a firm. A partnership is similar to a sole proprietorship in that the partners are the only beneficiaries of the firm’s profits, but they are also responsible for any losses and debts. Partnerships can be especially attractive if each person’s expertise complements the others. For example, an accountant who specializes in preparing individual tax returns and another who has mastered business taxes might choose to join forces to offer customers a more complete set of tax services than either could offer alone.

From a practical standpoint, a partnership allows a person to take time off without closing down the business temporarily. Sander & Lawrence is a partnership of two home builders in Tallahassee, Florida. When Lawrence suffered a serious injury a few years ago, Sander was able to take over supervising his projects and see them through to completion. Had Lawrence been a sole proprietor, his customers would have suffered greatly. However, a person who chooses to be part of a partnership rather than operating alone as a sole proprietor also takes on some risk; your partner could make bad decisions that end up costing you a lot of money. Thus developing trust and confidence in one’s partner is very important.

Most large firms, such as Southwest Airlines, are organized as corporations. A key difference between a corporation on the one hand and a sole proprietorship and a partnership on the other is that corporations involve the separation of ownership and management. Corporations sell shares of ownership that are publicly traded in stock markets, and they are managed by professional executives. These executives may own a significant portion of the corporation’s stock, but this is not a legal requirement.

Another unique feature of corporations is how they deal with profits and losses. Unlike in sole proprietorships and partnerships, a corporation’s owners (i.e., shareholders) do not directly receive profits or absorb losses. Instead, profits and losses indirectly affect shareholders in two ways. First, profits and losses tend to be reflected in whether the firm’s stock price rises or falls. When a shareholder sells her stock, the firm’s performance while she has owned the stock will influence whether she makes a profit relative to her stock purchase. Shareholders can also benefit from profits if a firm’s executives decide to pay cash dividends to shareholders. Unfortunately, for shareholders, corporate profits and any dividends that these profits support are both taxed. This double taxation is a big disadvantage of corporations.

A specialized type of corporation called an S corporation avoids double taxation. Much like in a partnership, the firm’s profits and losses are reported on owners’ personal tax returns in proportion with each owner’s share of the firm. Although this is an attractive feature, an S corporation would be impractical for most large firms because the number of shareholders in an S corporation is capped, usually at one hundred. In contrast, Southwest Airlines has more than ten thousand shareholders. For smaller firms, such as many real-estate agencies, the S corporation is an attractive form of business.

A final form of business is very popular, yet it is not actually recognized by the federal government as a form of business. Instead, the ability to create a limited liability company (LLC) is granted in state laws. LLCs mix attractive features of corporations and partnerships. The owners of an LLC are not personally responsible for debts that the LLC accumulates (like in a corporation) and the LLC can be run in a flexible manner (like in a partnership). When paying federal taxes, however, an LLC must choose to be treated as a corporation, a partnership, or a sole proprietorship. Many home builders (including Sander & Lawrence), architectural businesses, and consulting firms are LLCs.

Key Takeaway

  • The three major forms of business in the United States are sole proprietorships, partnerships, and corporations. Each form has implications for how individuals are taxed and resources are managed and deployed.
  • Why are so many small firms sole proprietorships?
  • Find an example of a firm that operates as an LLC. Why do you think the owners of this firm chose this form of business over others?
  • Why might different forms of business be more likely to rely on a different organizational structure?

How to Start a Business: A Comprehensive Guide and Essential Steps

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Conducting Market Research

Crafting a business plan, reviewing funding options, understanding legal requirements, implementing marketing strategies, how much does it cost to start a business, what should i do before starting a business, what types of funding are available to start a business, do you need to write a business plan, the bottom line.

Building an effective business launch plan

legal form of business in business plan

Starting a business in the United States involves a number of different steps, spanning legal considerations, market research, creating a business plan, securing funding, and developing a marketing strategy. It also entails decisions around a business’s location, structure, name, taxation, and registration.

This article covers the key steps involved in starting a business, as well as important aspects of the process for entrepreneurs to consider.

Key Takeaways

  • Entrepreneurs seeking to develop their own business should start by conducting market research to understand their industry space and competition, and to target customers.
  • The next step is to write a comprehensive business plan, outlining the company’s structure, vision, and strategy. Potential funders and partners may want to review the business plan in advance of signing any agreements.
  • Securing funding is crucial in launching a business. Funding can come in the form of grants, loans, venture capital, or crowdfunded money; entrepreneurs may also opt to self-fund instead of or in combination with any of these avenues.
  • Choosing a location and business structure can have many implications for legal aspects of business ownership, such as taxation, registration, and permitting, so it’s important to fully understand the regulations and requirements for the jurisdiction in which the business will operate. 
  • Another key aspect of launching a new business is having a strategic marketing plan that addresses the specifics of the business, industry, and target market.

Before starting a business, entrepreneurs should conduct market research to determine their target audience, competition, and market trends. 

The U.S. Small Business Administration (SBA) recommends researching demographic data around potential customers to understand a given consumer base and reduce business risk. It also breaks down common market considerations as follows:

  • Demand : Do people want or need this product or service?
  • Market size : How many people might be interested?
  • Economic indicators : These include income, employment rate, and spending habits of potential customers.
  • Location : Where are the target market and the business located?
  • Market saturation : How competitive is the business space, and how many similar offerings exist?
  • Pricing : What might a customer be willing to pay?

Market research should also include an analysis of the competition (including their strengths and weaknesses compared to those of the proposed business), market opportunities and barriers to entry, industry trends, and competitors’ market share .

There are various methods for conducting market research, and the usefulness of different sources and methodologies will depend on the nature of the industry and potential business. Data can come from a variety of sources: statistical agencies, economic and financial institutions, and industry sources, as well as direct consumer research through focus groups, interviews, surveys, or questionnaires.

A comprehensive business plan is like a blueprint for a business. It will help lay the foundation for business development and can assist in decision making, day-to-day operations, and growth. 

Potential investors or business partners may want to review and assess a business plan in advance of agreeing to work together. Financial institutions often request business plans as part of an application for a loan or other forms of capital. 

Business plans will differ according to the needs and nature of the company and only need to include what makes sense for the business in question. As such, they can vary in length and structure depending on their intended purpose. 

Business plans can generally be divided into two formats: traditional business plans and lean startup business plans. The latter is typically more useful for businesses that will need to adjust their planning quickly and frequently, as they are shorter and provide a higher-level overview of the company.

The process of funding a business can be as unique as the business itself—that is, it will depend on the needs and vision of the business and the current financial situation of the business owner. 

The first step in seeking funding is to calculate how much it will cost to start the business. Estimate startup costs by identifying a list of expenses and putting a number to each of them through research and requesting quotes. The SBA has a startup costs calculator for small businesses that includes common types of business expenses. 

From there, an entrepreneur will need to determine how to secure the required funding. Common funding methods include:

  • Self-funding , also known as bootstrapping  
  • Seeking funding from investors, also known as venture capital  
  • Raising money by crowdfunding
  • Securing a business loan
  • Winning a business grant

Each method will hold advantages and disadvantages depending on the situation of the business. It’s important to consider the obligations associated with any avenue of funding. For example, investors generally provide funding in exchange for a degree of ownership or control in the company, whereas self-funding may allow business owners to maintain complete control (albeit while taking on all of the risk). 

The availability of funding sources is another potential consideration. Unlike loans, grants do not have to be paid back—however, as a result, they are a highly competitive form of business funding. The federal government also does not provide grants for the purposes of starting or growing a business, although private organizations may. On the other hand, the SBA guarantees several categories of loans to support small business owners in accessing capital that may not be available through traditional lenders.

Whichever funding method (or methods) an entrepreneur decides to pursue, it’s essential to evaluate in detail how the funding will be used and lay out a future financial plan for the business, including sales projections and loan repayments , as applicable.  

Legally, businesses operating in the U.S. are subject to regulations and requirements under many jurisdictions, across local, county, state, and federal levels. Legal business requirements are often tied to the location and structure of the business, which then determine obligations around taxation, business IDs, registration, and permits.

Choosing a Business Location

The location—that is, the neighborhood, city, and state—in which a business operates will have an impact on many different aspects of running the business, such as the applicable taxes, zoning laws (for brick-and-mortar, or physical locations), and regulations.

A business needs to be registered in a certain location; this location then determines the taxes, licenses, and permits required. Other factors to consider when choosing a location might include:

  • Human factors : Such as the target audience for your business, and preferences of business owners and partners around convenience, knowledge of the area, and commuting distance
  • Regulations and restrictions : Concerning applicable jurisdictions or government agencies, including zoning laws
  • Regionally specific expenses : Such as average salaries (including required minimum wages), property or rental prices, insurance rates, utilities, and government fees and licensing
  • The tax and financial environment : Including income tax, sales tax, corporate tax, and property tax, or the availability of tax credits, incentives, or loan programs

Picking a Business Structure

The structure of a business should reflect the desired number of owners, liability characteristics, and tax status. Because these have legal and tax compliance implications , it’s important to fully understand and choose a business structure carefully and, if necessary, consult a business counselor, lawyer, and/or accountant.

Common business structures include:

  • Sole proprietorship : An unincorporated business that has just one owner, who pays personal income tax on profits
  • Partnership : Options include a limited partnership (LP) or a limited liability partnership (LLP)
  • Limited liability company (LLC) : A business structure that protects its owners from personal responsibility for its debts or liabilities
  • Corporation : Options include a C corp , S corp , B corp , closed corporation , or nonprofit

Getting a Tax ID Number

A tax ID number is like a Social Security number for a business. Whether or not a state and/or federal tax ID number is required for any given business will depend on the nature of the business, as well as the location in which the business is registered.

If a business is required to pay state taxes (such as income taxes and employment taxes), then a state tax ID will be necessary. The process and requirements around state tax IDs vary by state and can be found on individual states’ official websites. In some situations, state tax IDs can also be used for other purposes, such as protecting sole proprietors against identity theft.

A federal tax ID, also known as an employer identification number (EIN) , is required if a business:

  • Operates as a corporation or partnership
  • Pays federal taxes
  • Wants to open a business bank account
  • Applies for federal business licenses and permits
  • Files employment, excise, alcohol, tobacco, or firearms tax returns

There are further situations in which a business might need a federal tax ID number, specific to income taxation, certain types of pension plans, and working with certain types of organizations. Business owners can check with the Internal Revenue Service (IRS) about whether they need an EIN.

Registering a Business

Registration of a business will depend on its location and business structure, and can look quite different depending on the nature and size of the business. 

For example, small businesses may not require any steps beyond registering their business name with local and state governments, and business owners whose business name is their own legal name might not need to register at all. However, registration can include personal liability protection as well as legal and tax benefits, so it can be beneficial even if it’s not strictly required. 

Most LLCs, corporations, partnerships, and nonprofits are required to register at the state level and will require a registered agent to file on their behalf. Determining which state to register with can depend on factors such as:

  • Whether the business has a physical presence in the state
  • If the business often conducts in-person client meetings in the state
  • If a large portion of business revenue comes from the state
  • Whether the business has employees working in the state

If a business operates in more than one state, it may need to file for foreign qualification in other states in which it conducts business. In this case, the business would register in the state in which it was formed (this would be considered the domestic state), and file for foreign qualification in any additional states.

Some businesses may decide to register with the federal government if they are seeking tax-exempt status or trademark protection, but federal registration is not required for many businesses.

Overall registration requirements, costs, and documentation will vary depending on the governing jurisdictions and business structure.

Obtaining Permits

Filing for the applicable government licenses and permits will depend on the industry and nature of the business, and might include submitting an application to a federal agency, state, county, and/or city. The SBA lists federally regulated business activities alongside the corresponding license-issuing agency, while state, county, and city regulations can be found on the official government websites for each region.

Every business should have a marketing plan that outlines an overall strategy and the day-to-day tactics used to execute it. A successful marketing plan will lay out tactics for how to connect with customers and convince them to buy what the company is selling. 

Marketing plans will vary according to the specifics of the industry , target market, and business, but they should aim to include descriptions of and strategies around the following:

  • A target customer : Including market size, demographics, traits, and relevant trends
  • Unique value propositions or business differentiators : Essentially, an overview of the company’s competitive advantage with regard to employees, certifications, or offerings
  • A sales and marketing plan : Including methods, channels, and a customer’s journey through interacting with the business
  • Goals : Should cover different aspects of the marketing and sales strategy, such as social media follower growth, public relations opportunities, or sales targets
  • An execution plan : Should detail tactics and break down higher-level goals into specific actions
  • A budget : Detailing how much different marketing projects and activities will cost

The startup costs for any given business will vary greatly depending on the industry, business activity, and product or service offering. Home-based online businesses will usually cost less than those that require an office setting to meet with customers. The estimated cost can be calculated by first identifying a list of expenses and then researching and requesting quotes for each one. Use the SBA’s startup costs calculator for common types of expenses associated with starting a small business.

Entrepreneurs seeking to start their own business should fully research and understand all the legal and funding considerations involved, conduct market research, and create marketing and business plans. They will also need to secure any necessary permits, licenses, funding, and business bank accounts.

Startup capital can come in the form of loans, grants, crowdfunding, venture capital, or self-funding. Note that the federal government does not provide grant funding for the purposes of starting a business, although private sources do.

Business plans are comprehensive documents that lay out the most important information about a business. They are important references for the growth, development, and decision-making processes of a business, and financial institutions as well as potential investors and partners generally request to review them in advance of agreeing to provide funding or work together.

Starting a business is no easy feat, but research and preparation can help smooth the way. Having a firm understanding of the target market, competition, industry, business goals, business structure, funding requirements, tax and operating regulations, and marketing strategy, and conducting research and consulting experts where necessary, are all things that entrepreneurs can do to set themselves up for success.

U.S. Small Business Administration. “ Market Research and Competitive Analysis .”

U.S. Small Business Administration. “ Write Your Business Plan .”

U.S. Small Business Administration. “ Loans .”

U.S. Small Business Administration. “ Fund Your Business .”

U.S. Small Business Administration. “ Pick Your Business Location .”

U.S. Small Business Administration. “ Choose a Business Structure .”

U.S. Small Business Administration. “ Get Federal and State Tax ID Numbers .”

Internal Revenue Service. “ Do You Need an EIN? ”

U.S. Small Business Administration. “ Register Your Business .”

U.S. Small Business Administration. “ Apply for Licenses and Permits .”

U.S. Small Business Administration. “ Marketing and Sales .”

U.S. Small Business Administration. “ Grants .”

  • How to Start a Business: A Comprehensive Guide and Essential Steps 1 of 25
  • How to Do Market Research, Types, and Example 2 of 25
  • Marketing Strategy: What It Is, How It Works, and How to Create One 3 of 25
  • Marketing in Business: Strategies and Types Explained 4 of 25
  • What Is a Marketing Plan? Types and How to Write One 5 of 25
  • Business Development: Definition, Strategies, Steps & Skills 6 of 25
  • Business Plan: What It Is, What's Included, and How to Write One 7 of 25
  • Small Business Development Center (SBDC): Meaning, Types, Impact 8 of 25
  • How to Write a Business Plan for a Loan 9 of 25
  • Business Startup Costs: It’s in the Details 10 of 25
  • Startup Capital Definition, Types, and Risks 11 of 25
  • Bootstrapping Definition, Strategies, and Pros/Cons 12 of 25
  • Crowdfunding: What It Is, How It Works, and Popular Websites 13 of 25
  • Starting a Business with No Money: How to Begin 14 of 25
  • A Comprehensive Guide to Establishing Business Credit 15 of 25
  • Equity Financing: What It Is, How It Works, Pros and Cons 16 of 25
  • Best Startup Business Loans 17 of 25
  • Sole Proprietorship: What It Is, Pros and Cons, and Differences From an LLC 18 of 25
  • Partnership: Definition, How It Works, Taxation, and Types 19 of 25
  • What Is an LLC? Limited Liability Company Structure and Benefits Defined 20 of 25
  • Corporation: What It Is and How to Form One 21 of 25
  • Starting a Small Business: Your Complete How-to Guide 22 of 25
  • Starting an Online Business: A Step-by-Step Guide 23 of 25
  • How to Start Your Own Bookkeeping Business: Essential Tips 24 of 25
  • How to Start a Successful Dropshipping Business: A Comprehensive Guide 25 of 25

legal form of business in business plan

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Resources and Knowledge for the Small Business CEO

5 types of legal forms of business.

One of the things that every entrepreneur struggles with is choosing from the several legal forms of business. Each of these legal forms of business has its own set of advantages.

Legal form filing

Read this post to learn more about the five different business structures and their key characteristics. This will help you identify the right fit for your business.

Let’s get started.

Table of Contents

The Five Legal Forms of Business That You Can Choose From

Here are the five basic legal forms of business, also known as business structures , that you can form to get started:

1. Sole Proprietorship

A Sole Proprietorship is a legal form of business or legal structure that is owned and run by a single person referred to as the sole proprietor.

What are the key features of a Sole Proprietorship?

Here is a quick list, for your reference:

  • It can have only one owner.
  • The financial liabilities of the business fall on the sole proprietor, making them personally responsible for their company.
  • All of the firm’s profits and losses go directly to the owner.
  • It is fairly easy and comparatively cheaper to start Sole Proprietorships.
  • The small business owner has complete control over the business administration.
  • The owner can file the tax returns as part of their personal tax returns.
  • It is difficult to secure funding for Sole Proprietorships so the owner needs to have enough capital to get the business started.

Overall, it is a good option for you to start a Sole Proprietorship if you have enough capital and want complete business ownership.

2. Partnership

This is one of the legal forms of business that can have more than one owner. If you want to start a business with two or more partners, then this is a good option.

Here are some of the key features of a Partnership firm:

  • All corporate profits and losses are shared between the partners as per previously agreed-upon terms.
  • Partners share ownership of the firm.
  • All of the partners have a say in business decisions and administration.
  • The business is considered as a separate entity and its tax returns are filed as such.
  • It requires forming a detailed partnership agreement, which the firm’s executives decide, before starting the business.

General Partnership firms do not provide personal liability protection and each partner is responsible for paying off their share of company debts. Use our business formation services to establish a Partnership firm quickly and efficiently.

3. Limited Liability Company (LLC)

This is the most preferred organizational structure, legal form of business, or business structure as it can give you the best of both worlds. It provides limited liability protection while also giving you the flexibility of a Sole Proprietorship or a Partnership.

Here are the key features of an LLC (Limited Liability Company):

  • It can have a single member or multiple members.
  • These members can be individuals as well as other business entities. However, banks and insurance companies can’t be members of an LLC.
  • Members can choose to be active or inactive partners.
  • Members are not personally responsible for the company’s financial liabilities and their personal assets are protected.
  • LLCs are pass-through entities and can be taxed as a Sole Proprietorship (only a single-member LLC), Partnership (a multi-member LLC), and even a Corporation.

It is slightly more complicated to form an LLC than a Sole Proprietorship but it is still comparatively easier than incorporating a Corporation.

4. C-Corporation

This is one of the legal forms of business where the business entity is taxed separately from the owners.

Here are the key features of a C-Corporation:

  • Owners have limited liability
  • Double taxation (Corporation and shareholder earnings)
  • Easy to raise capital
  • Transferable ownership (in the form of shares)

This is one of the preferred legal forms of business for big companies as it protects the personal assets of its owners by separating them from business assets. We can help you form a Corporation to get all of these benefits and reduce risk.

5. S-Corporation

This is a form of a Corporation where the owners choose to be taxed only on their personal incomes, thus avoiding double taxation.

It has most of the features of a C-Corporation and mainly differs in how the business taxes are filed. Find out the requirements of starting an S-Corporation in your state or fill out our S-Corporation registration application to get started.

Legal structure setup meeting

1. Which is the best among the legal forms of business?

All legal forms of business have their own advantages and disadvantages, and the best is subjective.

However, most new business owners prefer forming an LLC (Limited Liability Company) over other legal forms of business. It is a hybrid between Corporations and Sole Proprietorships/Partnerships and offers the best of these legal forms of business.

2. Which legal forms of business provide the most flexibility?

LLCs are the most flexible legal business structures.

They allow you to choose how you want the company income to be taxed while also providing you with personal liability protection. LLCs can have a single member or multiple members. It is fairly easy to register an LLC.

3. Which are the best states in the U.S. for tax purposes?

Wyoming and South Dakota do not levy any tax and are the most tax-friendly states. By far they are one of the best states to form an LLC .”

4. How do I choose from the basic legal forms of business organization?

That completely depends on your priorities in terms of how you want to be taxed, whether or not you want full control over the company, and if you have enough funds.

Overall, LLCs strike a good balance between Sole Proprietorships and Corporations and are usually the best option for small business owners.

5. Which legal forms of business are the easiest to set up?

A Sole Proprietorship is one of the easiest legal forms of business to set up and get running.

Use our business formation services to register your business regardless of which legal form of business or business structure you choose.

These are five of the most common legal forms of business that you can choose to start your new business. A Corporation is a preferred business form for large companies while most small businesses choose to form a Limited Liability Company (LLC).

Registering a new business involves a lot of steps and can be quite overwhelming for a first-time entrepreneur. We can help you take care of that by completing all of the documentation and legal formalities on your behalf.

Use our services to start your business in a quick and flexible manner.

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legal form of business in business plan

12.3 Legal Forms of Organization for the Small Business

Learning objectives.

  • Understand the different legal forms that a small business can take.
  • Explain the factors that should be considered when choosing a legal form.
  • Understand the advantages and disadvantages of each legal form.
  • Explain why the limited liability company may be the best legal structure for many small businesses.

Every small business must select a legal form of ownership. The most common forms are sole proprietorship, partnership, and corporation. A limited liability company (LLC) is a relatively new business structure that is now allowed by all fifty states. Before a legal form is selected, however, several factors must be considered, not the least of which are legal and tax options.

Factors to Consider

The legal form of the business is one of the first decisions that a small business owner will have to make. Because this decision will have long-term implications, it is important to consult an attorney and an accountant to help make the right choice. The following are some factors the small business owner should consider before making the choice: [citation redacted per publisher request] ; “Small Business Planner: Choose a Structure,” US Small Business Association , accessed February 3, 2012, archive.sba.gov/smallbusinessplanner/start/chooseastructure/index.html .

  • The owner’s vision. Where does the owner see the business in the future (size, nature, etc.)?
  • The desired level of control. Does the owner want to own the business personally or share ownership with others? Does the owner want to share responsibility for operating the business with others?
  • The level of structure. What is desired—a very structured organization or something more informal?
  • The acceptable liability exposure. Is the owner willing to risk personal assets? Is the owner willing to accept liability for the actions of others?
  • Tax implications. Does the owner want to pay business income taxes and then pay personal income taxes on the profits earned?
  • Sharing profits. Does the owner want to share the profits with others or personally keep them?
  • Financing needs. Can the owner provide all the financing needs or will outside investors be needed? If outside investors are needed, how easy will it be to get them?
  • The need for cash. Does the owner want to be able to take cash out of the business?

The final selection of a legal form will require consideration of these factors and tradeoffs between the advantages and disadvantages of each form. No choice will be perfect. Even after a business structure is determined, the favorability of that choice over another will always be subject to changes in the laws. “Limited Liability Company,” Entrepreneur.com , July 9, 2007, accessed February 3, 2012, www.entrepreneur.com/article/24484 .

Sole Proprietorship

A sole proprietorship The most basic type of business organization in which there is only one owner. is a business that is owned and usually operated by one person. It is the oldest, simplest, and cheapest form of business ownership because there is no legal distinction made between the owner and the business (see Table 12.1 "Sole Proprietorships: A Summary of Characteristics" ). Sole proprietorships are very popular, comprising 72 percent of all businesses and nearly $1.3 trillion in total revenue. US Internal Revenue Service, “Selected Returns and Forms Filed or to Be Filed by Type During Specified Calendar 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 owns a small service or retail operation, such as a dry cleaner, accounting services, insurance services, a roadside produce stand, a bakery, a repair shop, a 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; adapted from David L. Kurtz, Contemporary Business, 13th Edition Update (Hoboken, NJ: John Wiley & Sons, 2011), 163. Clearly, the sole proprietorship is the choice for most small businesses.

Table 12.1 Sole Proprietorships: A Summary of Characteristics

Source: John M. Ivancevich and Thomas N. Duening, Business: Principles, Practices, and Guidelines (Mason, OH: Atomic Dog Publishing, 2007), 60; David L. Kurtz, Contemporary Business, 13th Edition Update (Hoboken, NJ: John Wiley & Sons, 2011), 163; “How to Choose the Right Business Structure for Your Small Business,” National Federation of Independent Business , accessed February 3, 2012, http://bit.ly/KCvnaT ; William M. Pride, Robert J. Hughes, and Jack R. Kapoor, Business (Boston: Houghton Mifflin, 2008), 150–51.

Partnership

A partnership Two or more people voluntarily operating a business as co-owners for profit. is two or more people voluntarily operating a business as co-owners for profit. Partnerships make up more than 8 percent of all businesses in the United States and more than 11 percent of the total revenue. William M. Pride, Robert J. Hughes, and Jack R. Kapoor, Business (Boston: Houghton Mifflin, 2008), 150. Like the sole proprietorship, the partnership does not distinguish between the business and its owners (see Table 12.2 "Partnerships: A Summary of Characteristics" ). There should be a legal agreement that “sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, and what steps will be taken to dissolve the partnership when needed.” “Small Business Planner: Choose a Structure,” US Small Business Association , accessed February 3, 2012, archive.sba.gov/smallbusinessplanner/start/chooseastructure/index.html .

There are two types of partnerships. In the general partnership A business composed of two or more owners who contribute the initial capital of the business and share in the profits and the losses. , all the partners have unlimited liability, and each partner can enter into contracts on behalf of the other partners. A limited partnership A business format that may have several general partners and several more limited partners who do not have unlimited liability. has at least one general partner and one or more limited partners whose liability is limited to the cash or property invested in the partnership. Limited partnerships are usually found in professional firms, such as dentists, lawyers, and physicians, as well as in oil and gas, motion-picture, and real-estate companies. However, many medical and legal partnerships have switched to other forms to limit personal liability. John M. Ivancevich and Thomas N. Duening, Business: Principles, Guidelines, and Practices (Mason, OH: Atomic Dog Publishing, 2007), 60; David L. Kurtz, Contemporary Business, 13th Edition Update (Hoboken, NJ: John Wiley & Sons, 2011), 163; William M. Pride, Robert J. Hughes, and Jack R. Kapoor, Business (Boston: Houghton Mifflin, 2008), 150.

Before creating a partnership, the partners should get to know each other. According to Michael Lee Stallard, cofounder and president of E Pluribis Partners, a consulting firm in Greenwich, Connecticut, “The biggest mistake business partners make is jumping into business before getting to know each other…You must be able to connect to feel comfortable expressing your opinions, ideas and expectations.” Shelley Banjo, “Before You Tie the Knot…,” Wall Street Journal , November 26, 2007, accessed February 3, 2012, online.wsj.com/article/SB119562612627400387.html .

Table 12.2 Partnerships: A Summary of Characteristics

Source: John M. Ivancevich and Thomas N. Duening, Business: Principles, Practices, and Guidelines (Mason, OH: Atomic Dog Publishing, 2007), 64–65; David L. Kurtz, Contemporary Business, 13th Edition Update (Hoboken, NJ: John Wiley & Sons, 2011), 163; “How to Choose the Right Business Structure for Your Small Business,” National Federation of Independent Business , accessed February 3, 2012, http://bit.ly/KCvnaT ; William M. Pride, Robert J. Hughes, and Jack R. Kapoor, Business (Boston: Houghton Mifflin, 2008), 154–55; “Small Business Planner—Choose a Structure,” US Small Business Administration , accessed February 3, 2012, http://archive.sba.gov/smallbusinessplanner/start/chooseastructure/index.html .

Corporation

A corporation An artificial person created by law, with most of the legal rights of a real person. “is an artificial person created by law, with most of the legal rights of a real person. These include the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts” William M. Pride, Robert J. Hughes, and Jack R. Kapoor, Business (Boston: Houghton Mifflin, 2008), 157. (see Table 12.3 "Corporations: A Summary of Characteristics" ). Corporations make up 20 percent of all businesses in the United States, but they account for almost 90 percent of the revenue. Jeff Madura, Introduction to Business (St. Paul, MN: Paradigm Publishers International, 2010), 150. Although some small businesses are incorporated, many corporations are extremely large businesses—for example, Walmart, General Electric, Procter & Gamble, and Home Depot. Recent data show that only about one-half of the small business owners in the United States run incorporated businesses. Matthew Bandyk, “Turning Your Small Business into a Corporation,” US News & World Report , March 14, 2008, accessed February 3, 2012, money.usnews.com/money/business-economy/small-business/articles/2008/03/14/turning-your-small-business -into-a-corporation .

Scott Shane, author of The Illusions of Entrepreneurship (Yale University Press, 2010), argues that small businesses that are incorporated have a much higher rate of success than sole proprietorships, outperforming unincorporated small businesses in terms of profitability, employment growth, sales growth, and other measures. Matthew Bandyk, “Turning Your Small Business into a Corporation,” US News & World Report , March 14, 2008, accessed February 3, 2012, money.usnews.com/money/business-economy/small-business/articles/2008/03/14/turning-your-small-business -into-a-corporation . Shane maintains that being incorporated may not make sense for “tiny little businesses” because the small amount of risk may not be worth the complexity. However, Deborah Sweeney, incorporation expert for Intuit, disagrees, saying that “even the smallest eBay business has a risk of being sued” because shipping products around the country or the world can create legal problems if a shipment is lost. Matthew Bandyk, “Turning Your Small Business into a Corporation,” US News & World Report , March 14, 2008, accessed February 3, 2012, money.usnews.com/money/business-economy/small-business/articles/2008/03/14/turning-your-small-business -into-a-corporation . Ultimately, it is the small business being successful that may be the biggest factor for the owner to move from a sole proprietorship to a corporation.

Table 12.3 Corporations: A Summary of Characteristics

Source: “How—and Why—to Incorporate Your Business,” Entrepreneur , accessed February 3, 2012, http://www.entrepreneur.com/article/77730 ; John M. Ivancevich and Thomas N. Duening, Business: Principles, Practices, and Guidelines (Mason, OH: Atomic Dog Publishing, 2007), 64–65; “How to Choose the Right Business Structure for Your Small Business,” National Federation of Independent Business , accessed February 3, 2012, http://bit.ly/KCvnaT ; William M. Pride, Robert J. Hughes, and Jack R. Kapoor, Business (Boston: Houghton Mifflin, 2008), 154–55.

Limited Liability Company

The limited liability company An organizational form that can be limited to a single individual or several other owners or shareholders. is a relatively new form of business ownership that is now permitted in all fifty states, although the laws of each state may differ. The LLC is a blend of a sole proprietorship and a corporation: the owners of the LLC have limited liability and are taxed only once for the business. “How to Choose the Right Business Structure for Your Small Business,” National Federation of Independent Business , accessed February 3, 2012, www.nfib.com/tabid/56/?cmsid=49906 . The LLC provides all the benefits of a partnership but limits the liability of each investor to the amount of his or her investment (see Table 12.4 "Limited Liability Companies: A Summary of Characteristics" ). “LLCs were created to provide business owners with the liability protection that corporations enjoy without the double taxation.” “Limited Liability Company,” Entrepreneur.com , July 9, 2007, accessed February 3, 2012, www.entrepreneur.com/article/24484 .

According to Carter Bishop, a professor at Suffolk University Law School, who helped draft the uniform LLC laws for several states, “There’s virtually no reason why a small business should file as a corporation, unless the owners plan to take the business public in the near future.” Annalyn Censky, “Business Structures 101,” CNN Money , August 4, 2008, accessed February 3, 2012, http://cnnmon.ie/MDaxXN . In the final analysis, the LLC business structure is the best choice for most small businesses. The owners will have the greatest flexibility, and there is a liability shield that protects all owners. Annalyn Censky, “Business Structures 101,” CNN Money , August 4, 2008, accessed February 3, 2012, http://cnnmon.ie/MDaxXN .

Table 12.4 Limited Liability Companies: A Summary of Characteristics

Source: Annalyn Censky, “Business Structures 101,” CNN Money , August 4, 2008, accessed February 3, 2012, http://cnnmon.ie/MDaxXN ; “Limited Liability Company,” Entrepreneur.com , accessed February 3, 2012, http://www.entrepreneur.com/article/24484 ; John M. Ivancevich and Thomas N. Duening, Business: Principles, Practices, and Guidelines (Mason, OH: Atomic Dog Publishing, 2007), 64–65; “How to Choose the Right Business Structure for Your Small Business,” National Federation of Independent Business , accessed February 3, 2012, http://bit.ly/KCvnaT ; William M. Pride, Robert J. Hughes, and Jack R. Kapoor, Business (Boston: Houghton Mifflin, 2008), 159.

Key Takeaways

  • Every small business must select a legal form of ownership. It is one of the first decisions that a small business owner must make.
  • The most common forms of legal structure are the sole proprietorship, the partnership, and the corporation. An LLC is a relatively new business structure.
  • When deciding on a legal structure, every small business owner must consider several important factors before making the choice.
  • The sole proprietorship is the oldest, simplest, and cheapest form of business ownership. This business structure accounts for the largest number of businesses but the lowest amount of revenue. This is the choice for most small businesses.
  • A partnership is two or more people voluntarily operating a business as co-owners for profit. There are general partnerships and limited partnerships.
  • A corporation is an artificial person with most of the legal rights of a real person. Corporations make up about 20 percent of all businesses in the United States, but they account for almost 90 percent of the revenue.
  • Small businesses that are incorporated outperform unincorporated small businesses in terms of profitability, employment growth, sales growth, and other measures.
  • The LLC is a hybrid of a sole proprietorship and a corporation. It is the best choice for most small businesses.
  • Select three small businesses of different sizes: small, medium, and large. Interview the owners, asking each about the legal structure that the owner chose and why. If any of the businesses are sole proprietorships, ask the owner if an LLC was considered. If not, try to find out why it was not considered.
  • Frank’s BarBeQue is currently a sole proprietorship. Frank’s son, Robert, is trying to persuade his father to either incorporate or become an LLC. Assume that you are Robert. Make a case for each legal structure and then make a recommendation to Frank. It is expected that you will go beyond the textbook in researching your response to this assignment.

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Chapter 9: Executing Strategy through Organizational Design

Legal Forms of Business

Learning Objectives

  • Know the three basic legal forms of business.
  • Know the two specialized types of corporations.

Choosing a Form of Business

The legal form a firm chooses to operate under is an important decision with implications for how a firm structures its resources and assets. Several legal forms of business are available to entrepreneurial business owners. Each involves a different approach to dealing with profits and losses ( Figure 9.24 “Business Forms” ).

There are three basic forms of business. A sole proprietorship  is a firm that is owned by one person. From a legal perspective, the firm and its owner are considered one and the same. On the plus side, this means that all profits are the property of the owner (after taxes are paid, of course). On the minus side, however, the owner is personally responsible for the firm’s losses and debts. This presents a tremendous risk. If a sole proprietor is on the losing end of a significant lawsuit, for example, the owner could find his personal assets forfeited. Most sole proprietorships are small and many have no employees. In most towns, for example, there are a number of self-employed repair people, plumbers, and electricians who work alone on home repair jobs. Also, many sole proprietors run their businesses from their homes to avoid expenses associated with operating an office.

In a partnership ,   two or more partners share ownership of a firm. A partnership is similar to a sole proprietorship in that the partners are the only beneficiaries of the firm’s profits, but they are also responsible for any losses and debts. Partnerships can be especially attractive if each person’s expertise complements the others. For example, an accountant who specializes in preparing individual tax returns and another who has mastered business taxes might choose to join forces to offer customers a more complete set of tax services than either could offer alone.

From a practical standpoint, a partnership allows a person to take time off without closing down the business temporarily. In a partnership of two home builders, if one were to suffer a serious injury, the other partner could take over supervising his or her partner’s projects and see them through to completion. Had the builder been a sole proprietor, the customers and the business would have suffered greatly. However, a person who chooses to be part of a partnership rather than operating alone as a sole proprietor also takes on some risk; your partner could make bad decisions that end up costing you a lot of money. Thus developing trust and confidence in one’s partner is very important.

Most large firms, such as Canadian Tire, are organized as corporations. A key difference between a corporation  on the one hand and a sole proprietorship and a partnership on the other is that corporations involve the separation of ownership and management. Corporations sell shares of ownership that are publicly traded in stock markets, and they are managed by professional executives. These executives may own a significant portion of the corporation’s stock, but this is not a legal requirement.

In Canada, there are several types of corporations:  a Canadian-controlled private corporation (CCPC);  a public corporation ; a corporation controlled by a public corporation; and another corporation (you guessed it: the type of corporation that doesn’t fit into any of the other categories). Legally, the shareholders or owners of corporations cannot be held legally liable for the corporations actions, their financial risk is limited to the value of the stocks they own.

A unique feature of corporations is how they deal with profits and losses. Unlike in sole proprietorships and partnerships, a corporation’s owners (i.e., shareholders) do not directly receive profits or absorb losses. Instead, profits and losses indirectly affect shareholders in two ways. First, profits and losses tend to be reflected in whether the firm’s stock price rises or falls. When a shareholder sells his or her stock, the firm’s performance while that person has owned the stock will influence whether he or she makes a profit relative to the stock purchase. Shareholders can also benefit from profits if a firm’s executives decide to pay cash dividends to shareholders. Unfortunately, for shareholders, corporate profits and any dividends that these profits support are both taxed. This double taxation is a big disadvantage of share ownership in corporations.

A final form of business is a limited liability company (LLC) . The Canada Revenue Agency (CRA) continues to treat the LLC as a corporation rather than a partnership, which results in classic double taxation to Canadian investors. Canadians should be aware that U.S. limited liability companies may be hazardous to their (tax) health.

Key Takeaways

  • The three major forms of business in Canada are sole proprietorships, partnerships, and corporations. Each form has implications for how individuals are taxed and resources are managed and deployed.
  • Why are so many small firms sole proprietorships?
  • Find an example of a firm that operates as an LLC. Why do you think the owners of this firm chose this form of business over others?
  • Why might different forms of business be more likely to rely on a different organizational structure?

Moody, K.G.C.  (2013, February 7).  Canadians beware! United States limited liability companies may be hazardous to your (tax) health.   2014 Moodys Gartner Tax Law LLP.  Retrieved from http://www.moodysgartner.com/canadians-beware-united-states-limited-liability-companies-may-be-hazardous-to-your-tax-health/

Industry Canada. (2013, September 13). SME Research and Statistics , Key Small Business Statistics – August 2013 . Retrieved from http://www.ic.gc.ca/eic/site/061.nsf/eng/02812.html

Ward, S.  (2014).  Types of Corporations in Canada and Corporate Tax .  About.com.   Retrieved from  http://sbinfocanada.about.com/od/corporatetax/a/corporationtype.htm

Image descriptions

Figure 9.24 image description: Business Forms

Making a profit is a key goal for the overwhelming majority Of firms. How a firm’s owners benefit from profits and suffer from losses varies across different legal forms of business. Below we illustrate how profits and losses are treated within different business forms.

  • A sole proprietorship is owned by one person. The firm and its owner are treated interchangeably – the owner is the only beneficiary of any profits and is personally responsible for any losses and debts. Most sole proprietorships are small, but entrepreneur Jim Pattison has operated Jim Pattison Group for over 60 years.
  • In a partnership, two or more partners jointly own the firm. A successful partnership requires trust because profits and losses are shared and because each partner is accountable for the actions of others. Partnerships are a common business form for dental practices and law offices.
  • A corporation such as WestJet Airlines separates ownership and management by issuing ownership shares that are publicly traded in stock markets. Shareholders do not directly receive profits or absorb losses, but profits and losses tend to be reflected in whether the firm’s stock price rises Or falls. Shareholders can also benefit from profits in the form of dividends. A disadvantage of this business form is double taxation: taxes are paid on corporate profits and on any dividends that corporate income fuels.
  • A limited liability company (LLC) can be thought of as a hybrid of a corporation and a partnership. Like in a corporation, owners are not accountable for the firms debts. A winner of a legal judgment against an LLC, for example, cannot claim the personal assets of the LLC’s owners. LLCs also enjoy the management flexibility of partnerships. For federal tax purposes, an LLC must choose to be treated as a corporation, a partnership, or a sole proprietorship. Most sole proprietorships are small businesses, often with no employees at the beginning. Small businesses (up to 99 employees) contribute approximately 30% of Canada’s GDP. Source: Industry Canada. (2013, Sept. 13). SME Research and Statistics, Key Small Business Statistics – August 2013. Retrieved from : http://www.ic.gc.ca/eic/site/061.nsf/eng/02812.html

Return to Figure 9.24

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  • Figure 9.24: Attribution information for all included images is in the chapter conclusion.

A firm that is owned by one person.

A legal form of business wherein two or more partners share ownership of a firm.

A legal form of ownership wherein shares of ownership are publicly traded in stock markets, and management is performed by professional executives.

A form of ownership that is granted wherein owners are not personally responsible for debts that the LLC accumulates (as in a corporation) and the LLC can be run in a flexible manner (as in a partnership).

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10 Legal Forms Required to Launch Your Business

Starting a new business is one of the most exciting moments of your life. It’s natural to be bursting with enthusiasm and raring to go. But as Winston Churchill said, “He who fails to plan is planning to fail.” Making sure you have all the legal documents needed for your business is crucial.

Whether you’re a solopreneur or the founder of an organization with a team of employees, having the right legal forms in place is crucial. These documents serve as protection for everyone involved in a business, from the owners to employees, and even customers.

legal form of business in business plan

Not having the correct legal forms for your business means exposing yourself to legal risks and liabilities. Not only could this have a damaging effect on your business, but you could also end up in trouble with the law for not complying with your responsibilities as a business owner.

The 10 Essential Legal Forms Needed To Start Your Business

Setting up a new business can be overwhelming, especially when considering the seemingly endless lists of forms and documents, relating to trading, tax, and employment.

Here, we will break down the ten most important legal forms for you as a new business owner:

1. Business Plan

Although a business plan may not technically be a legal form, it is an essential aspect of starting your business. After all, having a precise and well-thought-out plan ensures that you don’t miss a step when it comes to the legal forms you will need.

Your plan should cover your business strategy, financial goals, and projections, and should also consider the area of focus for your business.

  • Will you have employees?
  • Will you need premises?
  • What financial support from banks will you need?

Answering these questions in the form of a business plan will allow you to stay on track for success.

2. Articles of Incorporation

If you’re starting a corporation, then you must file these legal documents with the Secretary of State or the equivalent agency in the state where your business is. These forms establish your corporation as a separate legal entity to you as an individual and provides you with corresponding legal protection.

Articles of incorporation generally include your business name and purpose, information about stocks and shares, and the board of directors and incorporators. Once these documents have been filed and accepted, the corporation is allowed to start doing business.

3. Operating Agreement

If you wish to form a limited liability company (LLC), then an operating agreement is an important document. It isn’t a legal requirement, but it is an essential form for any LLC as it provides information and clarity about the ownership structure, roles, and responsibilities of the company. It’s there to protect all members of the LLC.

The operating agreement provides key financial information such as the capital contributions of each member. It also sets out the allocation of profit and loss. It protects members by setting out procedures for the transfer of ownership and asset distribution in case of dissolution.

The content of individual operating agreements will vary according to the needs and structure of the LLC in question. We recommend taking professional legal advice when drawing up the operating agreement for your LLC.

4. Partnership Agreement

This form is essential for individuals wishing to form a partnership where more than one person is responsible for the business. Working in partnership can be a fantastic way to create an effective leadership team, but a partnership agreement is vital.

A partnership agreement clarifies the roles and responsibilities of each partner, outlining how the business will run. In the worst-case scenario of one of the partners dying or becoming too ill to work, it will outline how the business will continue or how their shares are distributed.

If you wish to apply for loans or financial support, investors will want to look at a partnership agreement to look at roles, responsibilities, and profit distribution. This form will protect both partners in the case of disputes or misunderstandings.

5. Trademark Registration

You will almost certainly devote time and energy to coming up with a unique name, brand, or slogan for your business. If you want to protect this legally, then it’s important to register the trademark.

Trademarking your business name or slogan will prevent other companies from copying or stealing your ideas, and will allow you to retain your unique identity. It’s a complex area of the law, so you should employ an attorney who specializes in this field.

6. Employee Agreement and Contract

Even if you start out as a solopreneur, if you think you might hire anyone down the road, then it’s absolutely essential to have an employee agreement and contract ready. Familiarizing yourself with the necessary documents is essential to not be blindsided in the long run. These forms are there to protect both you as an employer and also the employee.

An employee contract is arguably one of the most important forms that a business owner needs. An effective contract protects employers and employees alike. As your business grows, and now that most paperwork is actually digital , it may be worth considering third-party business tools to manage your contract needs.

The employee agreement will cover all the terms and conditions of employment. In the case of any dispute or misunderstanding over salary or job duties, it provides legal protection to employers and employees.

7. Non-Disclosure Agreement (NDA)

A non-disclosure agreement (NDA) form can be a vital document for new businesses in the USA wishing to protect their confidential information. It can protect intellectual property, such as trademarks and patents, which can take considerable time and money to develop.

Protecting your unique work product gives you an edge in the business world. If your intellectual property is not protected, it could be taken and used by a competitor, threatening your success.

Non-disclosure agreements are also an excellent way to allow you to collaborate with other organizations or outside parties. It means you can maximize outside expertise while being confident that your ideas and information are safe.

This form will help to protect you, your clients, sensitive data, and proprietary information.

8. Purchase Agreement

Any business which plans to sell goods and services needs a Purchase Agreement.

Its purpose is to protect both customers and suppliers by detailing all the terms and conditions of the sale process. It means that should there be any legal disputes over price, products, or payment terms, you have full legal protection.

9. Privacy Policy

Many businesses will collect personal data from clients and employees. A privacy policy is a document that sets out how your business will store sensitive data, ensuring that it’s kept private and secure. This form will prevent disputes and misunderstandings around data protection.

In an age where sensitive information is regularly emailed and shared online, this is a crucial policy. In recent years, a string of famous companies have faced massive fines for data breaches, highlighting the need for a focus on privacy.

Along with ensuring your business has every form necessary for its legal, financial, and commercial purposes, there is the small matter of storing these forms in a secure cloud-based format. Many organizations look for tools to compress PDF forms to store them online.

10. Business License

Having a business license when starting a business in America is important for several reasons. Depending on the state your business is operating in, it may be a legal requirement to have a business license. Even if you are in a state where it is not a legal requirement, it will add credibility, providing reassurance to your customers.

A business license can also open doors to funding opportunities provided by state and federal government programs. As a new business owner, it would be a shame to miss out on available resources!

Getting Started

This is not an exhaustive list of legal forms and documents. It would always be recommended to take professional advice when setting up a new business and to take advantage of tools such as a free online PDF editor to make managing your documents easier.

Once you have your legal forms in place and your financial documents stored safely you can rest assured your business is protected. Now, you can really focus on moving forward with your business plan to create a successful future for your new venture.

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4 Ownership structures and legal forms

Businesses not only vary in size and industry but also in their ownership. Some are owned by just one person or a small group of people, some are owned by large numbers of shareholders, some are owned by charitable foundations or trusts, and some are even owned by the state. Different ownership structures overlap with different legal forms that a business can take. A business’s legal and ownership structure determines many of its legal responsibilities, including the paperwork that the owners need to complete in order to set up the business, the taxes the business has to pay, how profits from the business are distributed, and the owners’ personal responsibilities if the business makes a loss or goes bankrupt.

It is not necessary to go into great detail on legal forms and ownership structures here but a short overview will help you to appreciate the diversity of businesses. At the broadest level it is possible to distinguish between organisations that are owned and run by private owners, those that are owned and run by the state and those that are run by voluntary organisations. Here we will first look at different types of privately owned businesses.

Legal forms and ownership structures of businesses are different from country to country. In the United Kingdom the majority of businesses (but not all) are sole traders, limited companies or business partnerships (UK Government, n.d.).

  • Sole trader – a person who is running a business as an individual. Sole traders can keep all the business’s profits after paying tax on them but they are personally responsible for any losses the business makes (i.e. they would have to cover them out of their private money if necessary), paying the bills incurred by the business (e.g. stock or equipment), and keeping a record of all sales and expenditures. Sole traders can take on employees – the term implies that they own the business on their own, not that they must work there alone.
  • Limited company – an organisation set up by its owners to run their business. A limited company is a legal person . Of course, a company is not a person in the sense we commonly understand it. What the term means is that the law regards a limited company as having the same legal standing as a person, i.e. it has legal rights and obligations in itself, which are independent from the rights and obligations of its owners as individuals. For example, a limited company can own property. A limited company’s finances are separate from the finances of its owners. Any profit made after taxes belongs to the company. The company can then share its profits, most commonly among all the owners. Limited companies have ‘members’, i.e. the people who own the shares. A limited company also has ‘directors’. Directors may be share owners but they don’t have to be. Shareholders’ and directors’ responsibilities for the company’s financial liabilities (such as losses or debts) are limited to the value of their shareholdings. This means that they do not have to pay out of their personal income or assets if the company runs into financial difficulties. There are two main types of limited company: private limited companies and public limited companies. The shares of public limited companies (PLCs) are traded in the stock market, where anybody can buy shares in the company if they wish to do so. Private limited companies are not traded in the stock market and other people can only buy shares in them with the approval of the current owners (for example, if they are invited to invest in the company by the current owners).
  • Business partnerships – an arrangement where two or more individuals share the ownership of a business. There are two main types of partnership: general partnerships and limited partnerships. In a general partnership all partners are personally responsible for the business, meaning they are liable for any losses or debts with their personal income or wealth if necessary. In a limited partnership partners are not personally liable if the business incurs any losses or debts. Profits from a partnership are shared between the partners and each partner then pays taxes on their share. There are a lot of fine details and several possible permutations in the structure of business partnerships, which are important when setting one up but need not concern us any further here.

There are some other legal ownership structures for businesses in the UK (including some different laws relating to partnerships in Scotland) but the three introduced above are the most common. Similar business ownership structures exist in many other countries although the precise legal implications can differ in important ways.

Legal and ownership structures, business size and industry sector are not entirely independent of each other. For example, most sole traders tend to be small businesses, not least because a single individual rarely has the financial capacity to finance a very large business, nor the desire to be personally liable with all that they own if a large business were to run into financial troubles. Certain industry sectors require large businesses. For example, it is not viable to run a small steel works because the physical and financial investment required are so large. In other cases, industry sector and legal form are closely related. For example, law firms and some other professional service firms with more than one professional working in them in the United Kingdom are legally required to be set up as partnerships and no other ownership or legal structure is permitted.

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What the National Association of Realtors' settlement means for consumers and real estate brokers

A groundbreaking $418 million settlement announced Friday by the powerful National Association of Realtors is set to usher in the most sweeping reforms the American real estate market has seen in a century. It could dramatically drive down homebuyers’ costs — and push some real estate brokers out of business.

Here’s a look at how we got here and what to expect in the months ahead.

NAR already lost a big case

For decades, the NAR has required home sale listing brokers to provide an offer of compensation to a buyer’s agent up front. That usually comes out to about 6%, split between a seller’s broker and a buyer’s agent.

But that model has come under intensifying scrutiny from critics who have likened it to a cartel . Late last year, a jury in a Kansas City federal court found the longstanding practice to be a form of collusion that artificially inflated real estate fees, awarding a massive $1. 7 8 billion judgment against NAR .

What changes now for homebuyers and sellers

If the settlement announced Friday is approved by a federal court, the standard 6% commission goes away. Sellers would no longer have to make a compensation proposal to prospective buyers and their agents. Critics have said the encouraged brokers to push their clients toward more expensive properties.

Another new rule would see homebuyers having to sign an explicit deal with a broker before they start working with one — something experts say would lead many homebuyers to forgo using brokers entirely.

The new rules would kick in within months of approval, currently expected around mid-July.

What about the next few months?

Everyone involved in the market should expect “a certain amount of uncertainty for the coming months,” said Marty Green, principal at mortgage law firm Polunsky Beitel Green.

“The industry will be in transition as everyone digests the settlements and market forces begin working,” he predicted. “We will begin to see some creative buyer’s agent arrangements that may have been harder to get traction on before.”

Home buyers and their agents will need to decide on a commission and put it in writing. Sellers, likewise, will need to work carefully with their listing agents as the new rules come into effect.

U.S. consumers might save in the long run ...

The changes could mean buyers will save on commissions, eventually bringing U.S. fees more in line with the much lower transaction costs seen in other residential property markets around the world.

Some commissions could even be cut in half, Jaret Seiberg, housing policy analyst for TD Cowen Washington Research Group, told clients in a note Friday.

The new rules “should lead to commissions falling 25% to 50%, which we view as benefiting online real estate brokers,” Seiberg wrote, but he warned it’s too early to declare “the end of local real estate agents given their local expertise and reputation in neighborhoods. It is why we do not see this following the travel agency model in which online eclipsed local offices.”

... but buyers could face more confusion

Holden Lewis, a home and mortgage expert at NerdWallet, warned of a “potential negative trade-off”: “Buyer-seller negotiations will become more complex, and buyers with plenty of cash might navigate the process more easily than buyers who don’t have a lot of savings,” he said. Seiberg flagged a similar concern in his note, saying it could particularly affect first-time buyers with limited means to pay for an agent.

Brokers and agents have come out against the settlement, saying it will make the home-buying process more byzantine for consumers and discounts the important role agents play in helping them navigate it.

“I’m a full-service real estate agent, so when I go to list my client’s house, I align their goals with my goal, and that goal is selling for the highest amount possible,” said Roy Remick, a realtor based in Northern Virginia, who said he often pays thousands of dollars of his own for services like staging homes to aid the sale process.

“This is ultimately someone saying, ‘You guys make too much money,’ which I don’t think is right for someone to dictate,” he said.

Buyers’ agents will be left “flying blind” since they won’t know how much they’ll end up making from a given home, Remick warned. “We’ll have to make a bunch of phone calls, because now we don’t know what [the commission] is because we can’t see it in the MLS. But we’ve already got an agreement with buyer how much they’ll be able to compensate us.”

legal form of business in business plan

Christine Romans is the senior business correspondent at NBC News.

legal form of business in business plan

Rob Wile is a breaking business news reporter for NBC News Digital.

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Trump Media Merger Provides Trump a Potential Cash Lifeline

Having closed the merger of his social media company, Mr. Trump could find ways to raise cash against the value of his stake in the company, estimated at more than $3 billion.

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Former President Donald Trump stands at an outdoor podium with a large microphone, wearing a red hat that has "45-47" written on the side.

By Matthew Goldstein

Former President Donald J. Trump’s social media company — and the parent of his favorite communications platform, Truth Social — became a public company on Friday through a merger that will raise Mr. Trump’s wealth by billions of dollars and potentially help pay his mounting legal bills.

Trump Media & Technology Group is poised to debut on Wall Street at a market value of around $5 billion — based on the $37 share price of its merger partner, Digital World Acquisition Corp. Given that Mr. Trump owns more than 60 percent of the company, his overall net worth will increase by $3 billion — instantly doubling his wealth from the $2.6 billion estimate by Forbes magazine in October.

So far, those gains are on paper, and Mr. Trump is unlikely to be able to quickly turn it into cash because of restrictions in the merger agreement that prevent major shareholders from selling shares for at least six months, or using them as collateral for loans. But because Mr. Trump controls so much of Trump Media, and because his allies are expected to make up a majority of the new board, they could waive those restrictions on his request.

The question of where Mr. Trump can raise cash has become an urgent one because he is on the hook for hundreds of millions of dollars of legal bills tied to the multiple cases against him. Mr. Trump is facing a Monday deadline to cover a $454 million penalty in a civil fraud case brought by the New York State attorney general, which accuses him of greatly inflating the value of his real estate holdings in deals with banks.

If Mr. Trump cannot come up with the cash or a bond to cover the penalty while he appeals the ruling, the attorney general’s office could seize some of his properties.

Trump Media’s board might be reluctant to allow Mr. Trump to sell shares early as that would likely deflate the company’s share price. But lifting the restriction on using shares as collateral would help him secure a bond and minimize the negative impact on the stock price.

Before the merger closed, Mr. Trump was chairman of Trump Media but neither it nor Digital World disclosed whether he will continue to retain the title. Either way, Mr. Trump will hold enormous sway over the company as the company’s new seven-member board includes Mr. Trump’s eldest son, Donald Trump Jr., and three former members of his administration. His 79 million shares give him a large majority stake in the company and his brand is critical to the success of Truth Social, which has become his main megaphone with communicating to his supporters.

There is no guarantee that the stock of Trump Media will continue to trade at its current levels. If the share price falls over the coming months, the sizable increase to his net worth could be smaller over time. Digital World’s shares dropped about 14 percent after the shareholder vote approving the merger.

As part of the merger, investors in Digital World — the cash-rich shell company that voted to merge with Trump Media — will now become shareholders of Mr. Trump’s three-year-old company. The deal will transfer more than $300 million from Digital World’s coffers to Trump Media, a struggling business with little revenue, and allow Truth Social to keep operating.

Shares of Trump Media could begin trading on the stock market as early as Monday under the stock symbol DJT.

Many of Digital World’s 400,000 shareholders are ordinary investors and fans of Mr. Trump, whose enthusiasm about the former president has propped up the shares for years. But it remains to be seen whether they will hold on to the stock now that the merger is done.

In a statement before the vote, Trump Media said that “the merger will enable Truth Social to enhance and expand our platform.”

With the future of his real estate business in flux because of the ruling in the New York civil fraud case, Trump Media could become one of Mr. Trump’s main moneymakers — and a potential source of conflict should he win the presidency in November. Trump Media currently gets most of its revenue from Truth Social, its flagship platform where several upstart companies advertise their products, targeting Mr. Trump’s supporters and using slogans that are variations on America First or Make America Great Again.

In using the stock symbol DJT, Trump Media is taking a trip back in time. One of Mr. Trump’s former publicly traded companies, Trump Hotels and Casino Resorts, had traded under that stock symbol until it filed for bankruptcy in 2004.

The merger of Digital World and Trump Media, first proposed in October 2021, is one of the more prominent deals to emerge from a strategy that many companies used to go public that was all the rage during the pandemic. Special purpose acquisition companies like Digital World are speculative investment vehicles set up for the purpose of raising money in an initial public offering and then finding an operating business to buy.

In going public through a SPAC merger, Trump Media is following other so-called alt-right businesses like Rumble, an online video streaming service that caters to right-leaning media personalities, and PublicSquare, which bills itself as an online marketplace for the “patriotic parallel economy.”

Trump Media took in just $3.3 million in advertising revenue on Truth Social during the first nine months of last year, and the company, during that period, incurred a net loss of $49 million.

“It’s unclear to me what is the strategy to building out the platform especially so it may reach a broader advertiser,” said Shannon McGregor, a professor of journalism and media at the University of North Carolina. “There does seem to be a ceiling in these niche markets.”

The merger was almost derailed by a Securities and Exchange Commission investigation into deal talks between the two companies that took place before Digital World’s initial public offering. Securities rules prohibit SPACs from engaging in meaningful merger talks before going public.

But the deal got back on track after Digital World settled with the S.E.C. in July, agreeing to pay an $18 million penalty after the merger was completed and to revise its corporate filings.

After the deal was done on Friday, many shareholders and Trump fans celebrated online. Chad Nedohin, a vocal proponent of the merger on Truth Social, posted a livestream of the shareholder meeting on Rumble. In a chat room, viewers shared their enthusiasm for the deal, with messages such as “Great day to be alive” and “The day is finally here.”

Matthew Goldstein covers Wall Street and white-collar crime and housing issues. More about Matthew Goldstein

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    Figure 9.24: Business Forms [Image description] There are three basic forms of business. A sole proprietorship is a firm that is owned by one person. From a legal perspective, the firm and its owner are considered one and the same. On the plus side, this means that all profits are the property of the owner (after taxes are paid, of course).

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