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    BusinessPlanWorksheet 32

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    Sneha Sharma

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    © All Rights Reserved
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    BusinessPlanWorksheet 32

    Uploaded by

    Sneha Sharma
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    BusinessPlanWorksheet_32

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    6 views3 pages

    BusinessPlanWorksheet 32

    Uploaded by

    Sneha Sharma

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    Business Plan Workbook #32

    Course Formalizing Your Dream

    Topics Choosing the Right Legal Structure


    Addressed

    Key Points

    Choosing the Right Legal Structure


    Many entrepreneurs think about starting their business first and then, much later,
    they think about how they’re going to structure it. But, it's important to think about
    the legal structure of your business very early.

    Choosing the right legal structure for your business can protect your personal
    assets and can save you from paying unnecessary taxes. The sooner you
    structure your business, the sooner you can take advantage of the benefits.

    Types of Business Entities

    The most common business structures are:

     Sole proprietorship
     Partnership
     Corporation
     Limited liability company (LLC)

    A sole proprietorship is a very common, simple structure for a business. This


    structure gives the owner complete control of all aspects of the business. BUT, it
    also means that the owner is personally responsible for ALL financial obligations
    of the business.

    A partnership is similar to a sole proprietorship, but involves two or more


    people. The main advantage is profits or losses are reported on the individual
    partner’s income tax returns. The disadvantage is, like in a sole proprietorship,
    each partner is personally responsible for the financial obligations of the
    business.

    A corporation is a legal entity that is separate and distinct from its owners. It is
    created to handle the responsibilities of the organization. The main advantage of
    a corporation is that it reduces personal liability, because the owner, or owners of
    the business are not personally responsible for the financial obligations of the
    business. The main disadvantages are that forming a corporation is expensive
    and extensive record-keeping is required.

    1
    A limited liability company, or LLC, is a hybrid form of partnership that allows
    owners to gain benefits from both the corporation and partnership forms of
    business. One main advantage is that this business structure protects owners
    from personal liability.

    There are other, more specialized forms of organizational entities. For instance,
    you may decide to create a non-profit organization. If you want to learn about
    these specialized structures, you should seek expert advice.

    Factors to Consider
    To decide which legal structure is best for your business, you’ll need to assess
    your situation.

    First, you’ll want to consider legal liability. Is there a lot of risk associated with
    your business? If so, you may want to consider forming a corporation or a limited
    liability company, to reduce personal liability and protect your assets.

    You’ll also want to think about the tax implications of each business format, and
    what these implications mean for your business. Corporations and LLCs offer
    certain advantages when it comes to taxation. But do the tax advantages
    outweigh the costs of record-keeping? And, do they outweigh the initial cost of
    incorporation?

    Then, you should think about flexibility. Is flexibility important to you? Are you
    used to making all the decisions? If so, a sole proprietorship may be best option.

    Finally you’ll need to consider the future needs of your business. Do you think
    you’ll sell your business one day? Do you think you’d like to see your children
    take over? You should be mindful of your future goals when you’re deciding on a
    business structure.

    Some Words of Advice


    Choosing a legal structure for your business is important.

    First, you should get expert advice before you make a decision.

    Experts such as lawyers, accountants, and insurance advisors can help you
    consider all the advantages and disadvantages, as well as your businesses’
    unique needs.

    Second, you should be mindful that the structure of your business may change
    over time if your needs or the needs of your business change. For example, your
    business may start as a sole proprietorship or partnership, but evolve into a
    corporation as it grows and develops.

    2
    Related Business Plan Questions
    Below, you will see a business plan question related to the topic noted above. If
    you print this worksheet, you can use the space below the question to write down
    some initial thoughts and ideas.

    When you’re ready to start working on your business plan, return to the course,
    and select “Open My Business Plan”.

    Q: Describe the kind of legal structure you have chosen for your business. Use
    this space to explain any decisions you have made regarding the format. For
    instance: Who will be the legal owners of the business? Will it only be you, or will
    you have a partner(s)? If you do have a partner(s), how much of the business will
    each own? You can estimate a percentage (e.g.: 50% me, 50% my partner).

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