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How to Choose the Right Legal Structure for Your Business

On Behalf of Lake Tindall, LLP | April 13, 2024 | Business Law

If you’re starting a new business, congratulations! Business ownership is a wild ride and you’re in for a challenging and rewarding experience. Forming a business requires making many important decisions and one crucial decision is selecting a legal structure for your company. This decision will play an important role in your taxes, liability, and management structure. Lake Tindall Law Firm has helped thousands of businesses across Mississippi form, providing valuable information on which to base your business plan and build a strong foundation for your company. 

Business Formation Essentials

We have many clients who ask, “How do I choose a legal structure for my business?” And “What are the main factors to consider when determining the legal structure of a business?” Our experienced legal team is here to break down the main types of business structures and how to choose the right legal structure for your business

Sole Proprietorship Business Structure

Appropriate for small businesses with only one owner, sole proprietorships are easy and inexpensive to set up. There are very few regulatory requirements and the sole owner has full control over operations and company decisions. The profits for a sole proprietorship are taxed at an individual rate (on the sole proprietor), which means less overall taxes. The disadvantages of sole proprietorships is that there is no legal separation between the business owner and the business itself, which means the owner holds full liability. All debts, liabilities, and obligations fall to the owner. 

General Partnership Formation Jackson, MS

If there are more than business owner involved, general partnerships are an appropriate business structure. This allows for every partner to be involved in the decision-making and operations while drawing from the collective pooling of resources and expertise. With that said, this may also lead to disagreements amongst partners that can lead to issues over operations and profit-sharing. In a business partnership, the profits and losses go through individual partner’s tax returns so there is no double taxation. As with sole proprietorships, there is no legal separation so the partners are personally liable, as well as responsible for any debts and obligations. Limited Life partnerships end any business partnership with the death or incapacitation of one partner. 

Limited Liability Company (LLC)

An LLC is the ideal structure for businesses in industries that require a higher protection from liability. With LLCs, the business owner’s personal assets are legally separated from the business’s debts and liabilities. LLCs can be formed for businesses with a single or multiple owners, and there is greater tax flexibility, in that the owner can choose to be taxed as a pass-through entity or as a corporation. Another advantage of forming an LLC is that the operations and management structures are greatly flexible. Some of the disadvantages of forming LLCs are that they require a more intensive formation process and regulations vary state-by-state. It’s important to pay close attention to complying with all state standards. Members may be subject to self-employment taxes for their share of profits. 

Corporation Formations Mississippi

Just as with LLCs, corporations are ideal for those businesses that require protection from debts and liabilities. Protecting the shareholder’s personal assets through the legal separation of business and personal is a must for many individuals and many industries. The sale of stocks and bonds provides more access to capital which makes corporations ideal for businesses who will expand. Another advantage of corporations as a business structure is that they are independent of changes in ownership and management. The disadvantages of forming a corporation over other structures include double taxation. Profits are taxed at the corporate level and at the individual level when they are distributed to shareholders. Additionally, corporations are difficult and pricey to form, as well as requiring strict adherence to regulations. Corporations are typically scrutinized more heavily than other business structures, with compliance checks on filing, shareholder meetings, and governance. 

Best Law Firm for Business Formations Jackson, MS

Lake Tindall has extensive experience with forming businesses in Jackson, Mississippi. Our qualified team ensures every aspect of your business formation is set up correctly and adheres to all regulations. We’re always available to support your business formation process, including helping you choose which business structure is right for you. Contact our team today!