Choosing the Right Legal Structure For Your Business

Deciding on the legal structure of your business can be difficult. In the main, many entrepreneurs are not comfortable with deciding upon a legal structure. This is an important area that all business owners have to be comfortable with. No one is expecting you to become the next top lawyer. But, you do need to decide upon a legal structure. This is so that you pay the right amount of taxes. But, it also ensures that you are aware of the limitations of what your business can do. Remaining compliant is vital.

Types of Legal Structures

Choosing the right structure for your business is critical. There are three main factors that business owners consider when they are in the midst of choosing the right framework for them. These are:



Record keeping

These three factors can be a major factor in deciding what legal structure is best suited to your venture.


Image Credit: Alan Cleaver

Sole Proprietorship

This is the most common form of business structure. This is primarily due to the ease of setting up this kind of business. But, it also means that the business owner is exactly that. They have complete control over their business. As a CEO of a company, you are fully obligated to complete all of the relevant taxation and record keeping tasks. You are the sole owner of the financial obligations of your venture.


A partnership is as the name suggests when two people own the company. This means that the legal, financial and tax matters are dealt with jointly. The profits and losses of the company are directly attributed to all parties. This is popular because taxation is dealt with on an individual basis as opposed to a business basis. Lexis Nexis have more information on tax and commercial laws for partnerships.


Wouldn’t we all love to run a corporation ? It would actually feel as if we have made it. But, the new or fledgling business owner, this is not the right course of action to take. Just yet, at least. The corporation is taxed and liable differently to small business. There is no personal liability within a corporation.

But, the company of this size is heavily regulated. It is prone to auditing and record keeping in a way that smaller businesses are not held accountable for. Every document has to be recorded and audited thoroughly.  This is so that the right amount of tax can be paid. What is more, this means that the taxation for a corporation is higher than those of a sole proprietorship or a partnership.

So, What Structure is Right for You?

You need to carefully consider the pros and cons of each legal structure. While there are advantages and disadvantages to each, you need to think about the needs of your business. You need to think about your own personal liability. But, you also need to consider taxation matters. You need to think about the ongoing costs of the formation of your venture. What is more, you need to consider the auditing and recording costs too. This can be costly. This is why many choose to become sole proprietors as opposed to corporations.


Related Posts