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A Brief Overview of Common Business Structures

September 25, 2014 By wrlaw

At Wilson Ratledge we have helped many clients build their businesses with our expertise on variety of corporate law specifics, such as formation and governance, finances, and disputes. Because corporate law is such a strong point in our areas of practice, we wanted to inform our readers about the basics of the most common business ownership structures.

Sole Proprietorship and Partnerships
Sole proprietorships and partnerships are usually the best initial structures for new business owners. These are structures that do not have to file any special papers to form, simply register your business name as a business entity with the state. In sole proprietorships and partnerships the business and the owner are considered inseparable as far as taxes and financials are concerned. This means that the business owners reports business income and losses on their personal tax return and is personally liable for any business obligations. The only difference between sole proprietorships and partnerships is that a sole proprietorship is just one owner and a partnership is multiple.

Limited Partnerships
While a limited partnership is not generally recommended for most small business owners, because of cost and complexities, they divide financial responsibilities from the daily duties of running the business. The creator of the business, the “general partner” will take care of the functionality of the business, and solicit investments from the “limited partners” who in turn have minimal control over daily business decisions and operations. Due to this trade off, general partners are personally liable for any business debts (unless the general partner is a corporation or LLC), and the limited partners are not personally liable for business debts or claims.

Corporations and LLCs
The main benefit with these types of structures is that personal liability for business debts or claims is minimal and limited, however they can be complicated and costly to start. Corporations are separated legally and as a tax entity, from the people who own or manage the business. The owners only pay taxes on their income in the form of salaries and bonuses; the company pays its own taxes based on income and loss.

With an LLC, the liability is similar to a corporation, but the owners pay taxes on their shares of the business income on their personal tax returns, much like a partnership.

Nonprofit Corporations
A nonprofit corporation is created for charitable, educational, religious, or scientific purposes. Because of their contributions to society, nonprofits can solicit donations and grant money without usually paying taxes on money related to their purpose.

Cooperatives
Also called “groups,” “co-ops,” or “collectives,” a cooperative business is one that is owned and operated democratically by its members. Most states have specific laws to organize the creation of a cooperatives, and managers can file paperwork with the Secretary of State’s office to become formally recognized by the state.

Starting a business can be exciting and hectic, so sometimes important things get left to the wayside. For experienced help in starting your business, turn to the Boca Raton business lawyers of Wilson Ratledge. Our corporate attorneys in Raleigh and Boca Raton, can help you protect your existing business as well. Click here or call us today at (561) 338-4911 to speak with an experienced Raleigh, NC or Boca Raton, FL business lawyer.

Filed Under: Business Law

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  • Commercial Bankruptcy Litigation
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