Chapter 6

Starting with the Right Legal Structure

In This Chapter

  • Finding the right legal form for your business
  • Using the sole proprietorship
  • Choosing the partnership
  • Electing the corporate form
  • Selecting the best legal structure

Choosing the legal form for organizing your business is one of the important decisions you must make before launching the business. Because of changing laws, entrepreneurs today have many more choices regarding how to structure their companies. Your need for capital and protection from liability are just two reasons why understanding the options available to you is so essential.

Those changing laws are also a good reason for seeking the advice of a good attorney or CPA to make sure you're making the best choice for you and your type of business.

This chapter gives you a solid background on what you need to think about before choosing a legal form of business and what you need to understand about of the various forms available to you.

Deciding on the Best Legal Form for Your Business

All companies operate under one of four broad legal classifications:

  • Sole proprietorship
  • Partnership
  • Corporation
  • Limited Liability Company (LLC)

Many entrepreneurs assume that the best entity is always one that lets profits pass through to the owners at their personal tax rate. They further assume that incorporating in your home state is always best. These assumptions can be wrong for some entrepreneurs and for some businesses.

For example, if you know that you want to ...

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