What Are the Different Ways a Business Can Be Structured?

 Posted on November 19, 2021 in Business Law

Business owners and partners must make many decisions about how they will operate their business, address concerns that may arise, and plan for future growth. One of the most important decisions involves the way a business will be structured. During the business formation process, an owner will select a business entity and take steps to formally establish a company under a certain structure. By understanding the options for structuring a business, owners and partners can make sure they will be positioned for success.

Choosing the Right Business Entity

Business owners have multiple options for structuring their companies, including:

• Sole proprietorships - The simplest type of business structure involves a person using their personal assets to conduct business activities. In these cases, there is no separation between the business owner’s personal assets and the assets owned by the business. While this may allow for less complicated and more streamlined business operations, it will not provide an owner with protection from liability, and they will be personally responsible for paying any business debts and meeting other obligations.
• General partnerships - This type of structure is similar to a sole proprietorship, except that a business has multiple owners. In these cases, partners will be personally liable for business debts.
• Limited partnerships/LLPs - A business with multiple owners may be structured in a way that provides some partners with protection from liability. In these cases, one or more partners may be general partners, while other partners may be limited partners who have a less significant role in managing business operations and are protected from liability. A business may also be structured as a limited liability partnership (LLP) in which all partners are limited partners. This type of structure is often used for professional practices such as medical practices, accounting firms, or law firms, and it will allow partners to be protected from being held liable for malpractice committed by another partner.
• Corporations - A business may be structured as an independent legal entity, and shares of the business may be sold to investors to raise financing. Owners and shareholders will be protected from liability, and a company will need to meet a variety of reporting requirements to ensure that shareholders’ investments are protected. Depending on whether a business is structured as a C-corporation or S-corporation, it may be subject to corporate taxes, or taxes may be “passed through” and applied to the owners’ personal incomes.
• Limited liability companies (LLCs) - This type of structure offers some of the benefits of a corporation, while still allowing owners and partners to maintain flexibility and control as they conduct business operations. LLC owners are protected from liability, and they can also take advantage of tax laws to apply certain types of deductions and avoid issues such as double taxation on corporate profits.

Contact Our Greenwich Business Formation Lawyers

At Ivey, Barnum & O'Mara, LLC, we can help you determine the best options for structuring your business. Whether you are starting a new business or looking to restructure your business to ensure that you can obtain financing and protect yourself from liability, we will provide you with legal guidance and make sure you meet all of your requirements to establish the correct business entity. Contact our Connecticut business law attorneys at 203-661-6000 to arrange a free consultation.

Sources:

https://www.sba.gov/business-guide/launch-your-business/choose-business-structure

https://www.irs.gov/businesses/small-businesses-self-employed/business-structures