Legal Structure of Business

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Information about Legal Structure of Business
Business & Mgmt

Published on February 18, 2014

Author: TaresaFarfan



There are majorly two issues that are faced when starting up any business: these are the legal structure and the rights of intellectual property of the business.


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Description: There are majorly two issues that are faced when starting up any business: these are the legal structure and the rights of intellectual property of the business. The businesses are of different natures and thus their structures differ in different aspects. However, the business structures that are most common include:          General proprietorship Sole proprietorship Limited partnership Limited liability partnership Corporation Professional associations Limited liabilities companies Business trusts Professional corporations The most common issues that differentiate businesses are:       Taxation Liability Risk and control Continuance existence Expense and formality Transferability The most significant issues of all are the risk and taxation issues. Besides these issues, there are others too that vary with each form of business. There are only three types of business forms that are available to one-person company; sole proprietorship, limited liability company or corporation. Other extended options such as limited partnership, a limited liability company or general partnership are available to multiple owners companies. When one starts a business there is always a liability risk. Furthermore, liability risks are of two types: tort risk and contract risk. The former risk is the unintentional or intentional harm to a person or the property, for instance, product liability, general liability, automobile liability and worker injury. Contract risk caters to higher risks for example, risk with distributors and vendors and financing risks. Sole Proprietorship: It is the most common and simple form of business structure and is recognized the same as the owner. The cost associated for the formation of such business is very small. Page 1

General Partnership: It is the form of business structure where two or more people associate together for generation of profit. In this form of business the partners are liable for the debts and these businesses have pass-through taxation. Limited Partnership: The general partners in this business structure share personal liability. Whereas, the limited partners only share the risk of the capital they have invested. Limited Liability Partnership: It is the same as the limited partnership with the only difference that all the partners share limited liability. This form of partnership is most common in professionals such as lawyers and accountants. Corporation: Among large companies, corporation is the most common structure of business. Unlike previous partnership structures, corporation is a different entity than its owner. The features of corporation include perpetual existence, share transferability and limited liability. Limited Liability Company: The taxation flow-through associated with LLC is not liked by the venture capitalists. However, the good characteristic about LLC is the fact that hurdles are less with flexible allocation of income. Uniform Commercial Code: UCC governs businesses under state laws and has made similar state laws for all businesses. Reference: Page 2

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