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Select The Appropriate Legal Set Up For Your Business

By Leo Adkins

What would be the ideal legal structure for your small business? Legal structures concern the organizational style of a business. The legal set up of your business will to an extent determine the manner of your tax payments, your personal financial responsibilities and other matters that will affect on your business operations.

The usual legal structures in business are the proprietorships, the partnership and the corporation.

The sole proprietorship which is owned by just one person is the simplest and easiest to organize business legal structure. The business being personally owned by an individual, business profits are taxed as personal income of the business owner. One of the disadvantages of a proprietorship is that the owner including his assets is liable for any losses or indebtedness of the business. At least two persons must file for a partnership type of business. Like a sole proprietor, the partners are similarly but proportionately responsible for the tax obligations and any losses of the partnership. Because the corporation is a more intricate organization than either the proprietorship or partnership, and it is also harder to put up. The owners and investors have different legal personalities from the corporation; this applies to income and taxation and they also are not liable for corporate tax obligations or indebtedness.

If a businessman wants to save money on taxes, he may want to establish an S-Corporation or Single Person Corporation. Considered as an employee of the corporation, they receive a salary and pay their income taxes based on that salary. What is left of the business profit is considered as dividend due to them as the sole incorporator and this is type of income is taxed lower. So, the S-Corporation owner is able to avoid paying higher taxes and in the process save money by dividing the income into salaries and dividends.

Many business concerns started as sole proprietorship or a partnership, and only after attaining some experience and stability do they become a corporation. For a small business venture, this type of business structure is ideal because of the simplicity of the paperwork and filing processes, and the reduced risk of losses or of being sued. Increased risks, debt exposures and capital requirements are signs of a successful and expanding business, and should serve notice that the business should be upgraded to corporation status, partly to protect your personal assets and partly to allow for the entry of additional capital.

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Article Citation
MLA Style Citation:
Adkins, Leo "Select The Appropriate Legal Set Up For Your Business." Select The Appropriate Legal Set Up For Your Business. 17 Aug. 2010. 3 Oct 2014 <>.

APA Style Citation:
Adkins, L (2010, August 17). Select The Appropriate Legal Set Up For Your Business. Retrieved October 3, 2014, from

Chicago Style Citation:
Adkins, Leo "Select The Appropriate Legal Set Up For Your Business"

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