Company Legal Structures

Company Legal Structures

What legal structure should I choose for my company?

Creating a business requires a structure.

We’ll study the main existing structures so that you can choose the one that best fits your project.

Let’s explain what are the main types of business structures.
Note that this lesson doesn’t focus on a specific country, so business structures may be a little bit different in yours.

We encourage you to look for data related to your country.

1) Sole Proprietorship

A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one natural person and in which there is no legal distinction between the owner and the business.

You will also have access to the links in the further readings, but in case you are curious:
Characteristics of Sole Proprietorship:

– No setup costs (or very low)
– Complete control (1 person)
– Full liability
– Pass-through taxation
Full Liability / Limited Liability

Full liability means the owner of the company is accountable for the profits and losses of the company.

With limited liabilityyour personal assets are protected, which means that a creditor can’t come after your house.

Pass-through Taxation

No taxes are paid by the business, they pass directly to you.

This opposite is referred to as double taxation, because both the owner and the business pay taxes.

2) Partnership

A partnership involves two or more people who agree to share in the profits or losses of a business.

Characteristics of a Partnership:

– Setup costs very low
– Two or more people
– Full liability
– Pass-through taxation
3) Corporation

A corporation is a company or group of people authorized to act as a single entity (legally a person) and recognized as such in law.

You will also have access to the links in the further readings, but in case you are curious:
Characteristics of a Corporation:

– High cost
– Limited liability
– Ability to raise venture capital or conduct initial public offering
– Extensive record-keeping required
– Double taxation

4) Limited Liability Company (LLC)

A limited liability company (LLC) is the United States-specific form of a private limited company. It is a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.

There are LLC equivalents in many countries, note that they could be different in terms of taxation for example. See more:
Characteristics of a Limited Liability Company:

– Some setup costs
– Limited liability
– Pass-through taxation
– Difficult to raise capital

Question time!

In which legal structure could a creditor come after your house if you are in debt?*

Our Advice:

Evaluate the following criteria before choosing:
– Legal liability
– Tax implications
– Setup cost and administrative cost
– Flexibility
– Future needs

Note that your structure doen’t have to remain the same forever. It can be more or less difficult to switch from one structure to another, but it’s still possible. You may want to check this as well.
To sum up, here is a table to compare the different types of structures we mentioned.
Once again, note that some parameters can vary depending on the country you are living in.
Jim Rohn Sứ mệnh khởi nghiệp