Choose a business structure

 

legal structure of a business plan

Business Plan. Business Legal Structure. A business may be conducted through a variety of organization structures. A specific business structure is generally chosen for liability and/or tax reasons. We strongly recommend consulting with a qualified attorney and a CPA prior to selection of your business entity. If you plan to change your legal structure in the future, make projections regarding why you would change, when the change would take place, who would be involved and how the change would benefit the company. Description of the Business This is the section of the plan in which you go into greater detail about your business. Answer. The business structure you choose influences everything from day-to-day operations, to taxes, to how much of your personal assets are at risk. You should choose a business structure that gives you the right balance of legal protections and benefits.


Choose Your Business Structure


Of all the choices you make when starting a business, one of the most important is the type of legal structure you select for your company. Not only will this decision have an impact on how much you pay in taxes, it will affect the amount of paperwork your business is required to do, the personal liability you face and your ability to raise money. Kalish has also been involved with a number of other start-up businesses, both as an owner and in various management positions.

The answer to the question of "What structure makes the most sense? It's not a decision to be entered into lightly, either, or one that should be made without sound legal structure of a business plan from business experts. Kalish says it's important for business owners to seek expert advice from business professionals when considering the pros and cons of various business entities.

Types of Business Entities The type of business entity you choose will depend on three primary factors: liability, taxation and record-keeping. Here's a quick look at the differences between the most common forms of business entities:. When making a decision about the type of business to form, there are several criteria you need to evaluate. Kalish and EnviroTech co-owner John Berthold focused on the following areas when they chose the business format for their company:.

Legal liability. To what extent does the owner need to be insulated from legal liability? This was a consideration for EnviroTech, says Kalish. He and Berthold had a hefty investment in equipment, and the contracts they work on are substantial. They didn't want to take on personal liability for potential losses associated with the business.

Carol Baker is the owner of The Company Corporation, a firm based in Wilmington, Delaware, that offers incorporation services. She points to the protection of personal assets as "the number-one reason our clients incorporate.

In case of a lawsuit or judgment against your business, no one can seize your personal assets. It's the only rock-solid protection for personal assets that you can get in business. Tax implications. Based on the individual situation and goals legal structure of a business plan the business owner, what are the opportunities to minimize taxation? Baker points out that there are many more tax options available to corporations than to proprietorships or partnerships.

As mentioned before, double taxation, a common disadvantage often associated with incorporation, can be avoided with S corporation status. An S corporation, according to Baker, is available to companies with less than 70 shareholder returns; business losses can help reduce personal tax liability, legal structure of a business plan, particularly in the early years of a company's existence. Cost of formation and ongoing administration.

Tax advantages, however, may not offer enough benefits to offset other costs of conducting business as a corporation, legal structure of a business plan. Kalish refers to the high cost of record-keeping and paperwork, as well as the costs associated with incorporation, as one reason that business owners may decide to choose another option--such as a sole proprietorship or partnership.

Taking care of administrative requirements often eats up the owner's time and therefore creates costs for the business. It's the record-keeping requirements and the costs associated with them that led Kalish to identify the sole proprietorship as a very popular form of business entity, legal structure of a business plan.

It's the type of entity in place at his other business, Nationwide Telemarketing. There's no real reason to encumber yourself with all the reporting requirements of a corporation unless you're benefiting from tax implications or protection from liability. Your goal is to maximize the flexibility of the ownership structure by considering the unique needs of the business as well as the personal needs of the owner or owners.

Individual needs are a critical consideration. No two business situations will be the same, particularly when multiple owners are involved. No two people will have the same goals, concerns or personal financial situations. Future needs. When you're first starting out in business, it's not uncommon to be "caught up in the moment. What will happen to the business after you die? What if, after a few years, you decide to sell your part of a business partnership? The issue of ownership was a key one for EnviroTech.

This is especially helpful when banks are being tight with money. Another important question to ask yourself is, "What do I want to happen to the business when I'm no longer around to run it? Keep in mind that the business structure you start out with may not meet your needs in years to come. Many sole proprietorships evolve into some other form of business-like a partnership or corporation-as the company grows and the needs of the owners change.

The bottom line? Don't take this very important decision lightly, and don't make a choice based on what somebody else has done. Carefully consider the unique needs of your business and its owners, and seek expert advice, before settling on a particular business format. The simplest structure is the sole proprietorship, which usually involves just one individual who owns and operates the enterprise. If you intend to work alone, this may be the way to go.

The tax aspects of a sole proprietorship are especially appealing because income and expenses from the business are included on your personal income tax return Form Your profits and losses are first recorded on a tax form called Schedule C, which is filed along with your Then the "bottom-line amount" from Schedule C is transferred to your personal tax return.

This aspect is especially attractive because business losses you suffer may offset income earned from other sources. As a sole proprietor, you must also file a Schedule SE with Form You use Schedule SE to calculate how much self-employment tax you owe.

In addition to paying annual self-employment taxes, you must also make quarterly estimated tax payments on your income. The federal government permits you to pay estimated taxes in four equal amounts throughout the year on the 15th of April, June, September and January.

With a sole proprietorship, your business earnings are taxed only once, unlike other business structures. Another big plus is that you have complete control of your business-you make all the decisions.

There are a few disadvantages to consider, however. Selecting the sole proprietorship business structure means you're personally liable for your company's liabilities. As a result, you're placing your own assets at risk, and they could be seized to satisfy a business debt or legal claim filed against you, legal structure of a business plan.

Raising money for a sole proprietorship can also be difficult. Banks and other financing sources are reluctant to make business loans to sole proprietorships. In most cases, you'll have to depend on your own financing sources, such as savings, home equity or family loans.

If your business will be owned and operated by several individuals, you'll want to take a look at structuring your business as a partnership.

Partnerships come in two varieties: general partnerships and limited partnerships. In a general partnership, the partners manage the company and assume responsibility for the partnership's debts and other obligations. A limited partnership has both general and limited partners. The general partners own and operate the business and assume liability for the partnership, while the limited partners serve as investors only; they have no control over the company and are not subject to the same liabilities as the general partners.

Unless you expect to have legal structure of a business plan passive investors, legal structure of a business plan partnerships are generally not the best choice for a legal structure of a business plan business because of all the required filings and administrative complexities.

If you have two or more partners who want to be actively involved, a general partnership would be much easier to form. One of the major advantages of a partnership is the tax treatment it enjoys. A partnership doesn't pay tax on its income but "passes through" any profits or losses to the individual partners.

At tax time, each partner files a Schedule K-1 form, which indicates his or her share of partnership income, deductions and tax credits. In addition, each partner is required to report profits from the partnership on his or her individual tax return, legal structure of a business plan.

Even though the partnership pays no income tax, it must compute its income and report it on a separate informational return, Form Personal liability is a major concern if you use a general partnership to structure your business, legal structure of a business plan.

Similar to a sole proprietorship, general partners are personally liable for the partnership's obligations and debt. In addition, each general partner can act on behalf of the partnership, take out loans and make business decisions that will affect and be binding on all the partners if the general partnership agreement permits. Keep in mind that partnerships are more expensive to establish than sole proprietorships because they require more extensive legal and accounting services.

Protect yourself and your business with a partnership agreement. Starting a legal structure of a business plan with a partner? It may be difficult to talk about problems legal structure of a business plan your honeymoon stage, legal structure of a business plan, but that's exactly when you should, legal structure of a business plan. A written partnership agreement helps guide you when questions arise.

According to W. Thurston Debnam Jr. Debnam recommends that every business partnership-regardless of the relationship of the individuals-begin with a written agreement. But there's another reason for a partnership agreement. Using the corporate structure is more complex and expensive than most other business structures. A corporation is an independent legal entity, separate from its owners, and as such, it requires legal structure of a business plan with more regulations and tax requirements.

The biggest benefit for a small-business owner who decides to incorporate is the liability protection he or she receives. A corporation's debt is not considered that of its owners, so if you organize your business as a corporation, you're not putting your personal assets at risk.

A corporation also legal structure of a business plan retain some of its profits, without the owner paying tax on them. Another plus is the ability of a corporation to raise money. A corporation can sell stock, either common or preferred, to raise funds. Corporations also continue indefinitely, even if one of the shareholders dies, sells the shares or becomes disabled. The corporate structure, however, comes with a number of downsides.

A major one is higher costs.

 

Business Legal Structure | Alameda SBDC

 

legal structure of a business plan

 

The company summary in a business plan—also known as the company description or overview—is a high-level look at what you are as a company and how all the elements of the business fit together. An effective company summary should give readers, such as potential investors, a quick and easy way to understand your business, its products and services, its mission and goals, how it meets the. The business structure you choose influences everything from day-to-day operations, to taxes, to how much of your personal assets are at risk. You should choose a business structure that gives you the right balance of legal protections and benefits. Although a business plan is useful for new businesses, it can also help you refine your mission or pivot to a new area after the company is already open. LegalNature's form editor will help you to create a professional, in-depth business plan that gives potential investors and business partners an excellent overview of your business.