business plan legal status

Our Recommendations

• Best Small Business Loans for 2024
• Businessloans.com Review
• Biz2Credit Review
• SBG Funding Review
• Rapid Finance Review
• 26 Great Business Ideas for Entrepreneurs
• Startup Costs: How Much Cash Will You Need?
• How to Get a Bank Loan for Your Small Business
• Articles of Incorporation: What New Business Owners Should Know

How to Choose the Best Legal Structure for Your Business

Small business resources.

• Business Ideas
• Business Plans
• Startup Basics
• Startup Funding
• Franchising
• Success Stories
• Entrepreneurs
• The Best Credit Card Processors of 2024
• Clover Credit Card Processing Review
• Merchant One Review
• Stax Review
• How to Conduct a Market Analysis for Your Business
• Local Marketing Strategies for Success
• Tips for Hiring a Marketing Company
• Benefits of CRM Systems
• 10 Employee Recruitment Strategies for Success
• Sales & Marketing
• Social Media
• Best Business Phone Systems of 2024
• The Best PEOs of 2024
• RingCentral Review
• Nextiva Review
• Ooma Review
• Guide to Developing a Training Program for New Employees
• How Does 401(k) Matching Work for Employers?
• Why You Need to Create a Fantastic Workplace Culture
• 16 Cool Job Perks That Keep Employees Happy
• 7 Project Management Styles
• Women in Business
• Personal Growth
• Best Accounting Software and Invoice Generators of 2024
• Best Payroll Services for 2024
• Best POS Systems for 2024
• Best CRM Software of 2024
• Best Call Centers and Answering Services for Busineses for 2024
• Salesforce vs. HubSpot: Which CRM Is Right for Your Business?
• Rippling vs Gusto: An In-Depth Comparison
• RingCentral vs. Ooma Comparison
• Choosing a Business Phone System: A Buyer’s Guide
• Equipment Leasing: A Guide for Business Owners
• HR Solutions
• Financial Solutions
• Marketing Solutions
• Security Solutions
• Retail Solutions
• SMB Solutions

Table of Contents

Your business’s legal structure has many ramifications. It can determine how much liability your company faces during lawsuits. It can put up a barrier between your personal and business taxes – or ensure this barrier doesn’t exist. It can also determine how often your board of directors must file paperwork – or if you even need a board. [Related article: What to Do if Your Business Gets Sued ]

We’ll explore business legal structures and how to choose the right structure for your organization. 

What is a business legal structure?

A business legal structure, also known as a business entity, is a government classification that regulates certain aspects of your business. On a federal level, your business legal structure determines your tax burden. On a state level, it can have liability ramifications.

Why is a business legal structure important?

Choosing the right business structure from the start is among the most crucial decisions you can make. Here are some factors to consider:

• Taxes: Sole proprietors, partnership owners and S corporation owners categorize their business income as personal income. C corporation income is business income separate from an owner’s personal income. Given the different tax rates for business and personal incomes, your structure choice can significantly impact your tax burden.
• Liability: Limited liability company (LLC) structures can protect your personal assets in the event of a lawsuit. That said, the federal government does not recognize LLC structures; they exist only on a state level. C corporations are a federal business structure that includes the liability protection of LLCs.
• Paperwork: Each business legal structure has unique tax forms. Additionally, if you structure your company as a corporation, you’ll need to submit articles of incorporation and regularly file certain government reports. If you start a business partnership and do business under a fictitious name, you’ll need to file special paperwork for that as well.
• Hierarchy: Corporations must have a board of directors. In certain states, this board must meet a certain number of times per year. Corporate hierarchies also prevent business closure if an owner transfers shares or exits the company, or when a founder dies . Other structures lack this closure protection.
• Registration: A business legal structure is also a prerequisite for registering your business in your state. You can’t apply for an employer identification number (EIN) or all your necessary licenses and permits without a business structure.
• Fundraising: Your structure can also block you from raising funds in certain ways. For example, sole proprietorships generally can’t offer stocks. That right is primarily reserved for corporations.
• Potential consequences for choosing the wrong structure: Your initial choice of business structure is crucial, although you can change your business structure in the future. However, changing your business structure can be a disorganized, confusing process that can lead to tax consequences and the unintended dissolution of your business. 

Types of business structures

The most common business entity types are sole proprietorships, partnerships, limited liability companies, corporations and cooperatives. Here’s more about each type of legal structure.

Sole proprietorship

A sole proprietorship is the simplest business entity. When you set up a sole proprietorship , one person is responsible for all a company’s profits and debts.

“If you want to be your own boss and run a business from home without a physical storefront, a sole proprietorship allows you to be in complete control,” said Deborah Sweeney, vice president and general manager of business acquisitions at Deluxe Corp. “This entity does not offer the separation or protection of personal and professional assets, which could prove to become an issue later on as your business grows and more aspects hold you liable.”

Proprietorship costs vary by market. Generally, early expenses will include state and federal fees, taxes, business equipment leases , office space, banking fees, and any professional services your business contracts. Some examples of these businesses are freelance writers, tutors, bookkeepers , cleaning service providers and babysitters.

A sole proprietorship business structure has several advantages.

• Easy setup: A sole proprietorship is the simplest legal structure to set up. If you – and only you – own your business, this might be the best structure. There is very little paperwork since you have no partners or executive boards.
• Low cost: Costs vary by state, but generally, license fees and business taxes are the only fees associated with a proprietorship.
• Tax deduction: Since you and your business are a single entity, you may be eligible for specific business sole proprietor tax deductions , such as a health insurance deduction.
• Easy exit: Forming a proprietorship is easy, and so is ending one. As a single owner, you can dissolve your business at any time with no formal paperwork required. For example, if you start a day care center and wish to fold the business, refrain from operating the day care and advertising your services.

The sole proprietorship is also one of the most common small business legal structures. Many famous companies started as sole proprietorships and eventually grew into multimillion-dollar businesses. These are a few examples:

• Marriott Hotels

Partnership 

A partnership is owned by two or more individuals. There are two types: a general partnership, where all is shared equally, and a limited partnership, where only one partner has control of operations and the other person (or persons) contributes to and receives part of the profits. Partnerships can operate as sole proprietorships, where there’s no separation between the partners and the business, or limited liability partnerships (LLPs), depending on the entity’s funding and liability structure.

“This entity is ideal for anyone who wants to go into business with a family member, friend or business partner – like running a restaurant or agency together,” Sweeney said. “A partnership allows the partners to share profits and losses and make decisions together within the business structure. Remember that you will be held liable for the decisions made as well as those actions made by your business partner.”

General partnership costs vary, but this structure is more expensive than a sole proprietorship because an attorney should review your partnership agreement. The attorney’s experience and location can affect the cost. 

A business partnership agreement must be a win-win for both sides to succeed. Google is an excellent example of this. In 1995, co-founders Larry Page and Sergey Brin created a small search engine and turned it into the leading global search engine. The co-founders met at Stanford University while pursuing their doctorates and later left to develop a beta version of their search engine. Soon after, they raised $1 million in funding from investors, and Google began receiving thousands of visitors a day. Having a combined ownership of 11.4% of Google provides them with a total net worth of nearly $226.4 billion.

Business partnerships have many advantages. 

• Easy formation: As with a sole proprietorship, there is little paperwork to file for a business partnership. If your state requires you to operate under a fictitious name ( “doing business as,” or DBA ), you’ll need to file a Certificate of Conducting Business as Partners and draft an Articles of Partnership agreement, both of which have additional fees. You’ll usually need a business license as well.
• Growth potential: You’re more likely to obtain a business loan with more than one owner. Bankers can consider two credit histories rather than one, which can be helpful if you have a less-than-stellar credit score.
• Special taxation: General partnerships must file federal tax Form 1065 and state returns, but they do not usually pay income tax. Both partners report their shared income or loss on their individual income tax returns. For example, if you opened a bakery with a friend and structured the business as a general partnership, you and your friend are co-owners. Each owner brings a certain level of experience and working capital to the business, affecting each partner’s business share and contribution. If you brought the most seed capital for the business, you and your partner may agree that you’ll retain a higher share percentage, making you the majority owner.

Partnerships are one of the most common business structures. These are some examples of successful partnerships:

• Warner Bros.
• Hewlett-Packard
• Ben & Jerry’s

Limited liability company 

A limited liability company (LLC) is a hybrid structure that allows owners, partners or shareholders to limit their personal liabilities while enjoying a partnership’s tax and flexibility benefits. Under an LLC, members are shielded from personal liability for the business’s debts if it can’t be proven that they acted in a negligent or wrongful manner that results in injury to another in carrying out the activities of the business.

“Limited liability companies were created to provide business owners with the liability protection that corporations enjoy while allowing earnings and losses to pass through to the owners as income on their personal tax returns,” said Brian Cairns, CEO of ProStrategix Consulting. “LLCs can have one or more members, and profits and losses do not have to be divided equally among members.”

According to Wolters Kluwer , the cost of forming an LLC comprises the state filing fee and can vary depending on your state. For example, if you file an LLC in New York, you must pay a $200 filing fee, a $9 biennial fee, and file a biennial statement with the New York Department of State .

Although small businesses can be LLCs, some large businesses choose this legal structure. The structure is typical among accounting, tax, and law firms, but other types of companies also file as LLCs. One example of an LLC is Anheuser-Busch, one of the leaders in the U.S. beer industry. Headquartered in St. Louis, Anheuser-Busch is a wholly owned subsidiary of Anheuser-Busch InBev, a multinational brewing company based in Leuven, Belgium.

Here some other well-known examples of LLCs:

• Hertz Rent-a-Car

Corporation 

The law regards a corporation as separate from its owners, with legal rights independent of its owners. It can sue, be sued, own and sell property, and sell the rights of ownership in the form of stocks. Corporation filing fees vary by state and fee category. 

There are several types of corporations, including C corporations , S corporations, B corporations, closed corporations, and nonprofit corporations.

• C corporations: C corporations, owned by shareholders, are taxed as separate entities. JPMorgan Chase & Co. is a multinational investment bank and financial services holding company listed as a C corporation. Since C corporations allow an unlimited number of investors, many larger companies – including Apple, Bank of America and Amazon – file for this tax status.
• B corporations: B corporations, otherwise known as benefit corporations, are for-profit entities committed to corporate social responsibility and structured to positively impact society. For example, skincare and cosmetics company The Body Shop has proven its long-term commitment to supporting environmental and social movements, resulting in an awarded B corporation status. The Body Shop uses its presence to advocate for permanent change on issues like human trafficking, domestic violence, climate change, deforestation and animal testing in the cosmetic industry.
• Closed corporations: Closed corporations, typically run by a few shareholders, are not publicly traded and benefit from limited liability protection. Closed corporations, sometimes referred to as privately held companies, have more flexibility than publicly traded companies. For example, Hobby Lobby is a closed corporation – a privately held, family-owned business. Stocks associated with Hobby Lobby are not publicly traded; instead, the stocks have been allocated to family members.
• Open corporations: Open corporations are available for trade on a public market. Many well-known companies, including Microsoft and Ford Motor Co., are open corporations. Each corporation has taken ownership of the company and allows anyone to invest.
• Nonprofit corporations: Nonprofit corporations exist to help others in some way and are rewarded by tax exemption. Some examples of nonprofits are the Salvation Army, American Heart Association and American Red Cross. These organizations all focus on something other than turning a profit.

Corporations enjoy several advantages. 

• Limited liability: Stockholders are not personally liable for claims against your corporation; they are liable only for their personal investments.
• Continuity: Corporations are not affected by death or the transferring of shares by their owners. Your business continues to operate indefinitely, which investors, creditors and consumers prefer.
• Capital: It’s much easier to raise large amounts of capital from multiple investors when your business is incorporated.

This structure is ideal for businesses that are further along in their growth, rather than a startup based in a living room. For example, if you’ve started a shoe company and have already named your business, appointed directors and raised capital through shareholders, the next step is to become incorporated. You’re essentially conducting business at a riskier, yet more lucrative, rate. Additionally, your business could file as an S corporation for the tax benefits. Once your business grows to a certain level, it’s likely in your best interest to incorporate it.

These are some popular examples of corporations:

• General Motors
• Exxon Mobil Corp.
• Domino’s Pizza
• JPMorgan Chase

Learn more about how to become a corporation .

Cooperative 

A cooperative (co-op) is owned by the same people it serves. Its offerings benefit the company’s members, also called user-owners, who vote on the organization’s mission and direction and share profits.

Cooperatives offer a couple main advantages.

• Increased funding: Cooperatives may be eligible for federal grants to help them get started.
• Discounts and better service: Cooperatives can leverage their business size, thus obtaining discounts on products and services for their members.

Forming a cooperative is complex and requires you to choose a business name that indicates whether the co-op is a corporation (e.g., Inc. or Ltd.). The filing fee associated with a co-op agreement varies by state. 

An example of a co-op is CHS Inc., a Fortune 100 business owned by U.S. agricultural cooperatives. As the nation’s leading agribusiness cooperative, CHS reported a net income of $422.4 million for fiscal year 2020. These are some other notable examples of co-ops:

• Land O’Lakes
• Navy Federal Credit Union
• Ace Hardware

Factors to consider before choosing a business structure

For new businesses that could fall into two or more of these categories, it’s not always easy to decide which structure to choose. Consider your startup’s financial needs, risk and ability to grow. It can be challenging to switch your legal structure after registering your business, so give it careful analysis in the early stages of forming your business. 

Here are some crucial factors to consider as you choose your business’s legal structure. You should also consult a CPA for advice.

Flexibility 

Where is your company headed, and which type of legal structure allows for the growth you envision? Turn to your business plan to review your goals and see which structure best aligns with those objectives. Your entity should support the possibility for growth and change, not hold it back from its potential. [Learn how to write a business plan with this template .]

When it comes to startup and operational complexity, nothing is more straightforward than a sole proprietorship. Register your name, start doing business, report the profits and pay taxes on it as personal income. However, it can be difficult to procure outside funding. Partnerships, on the other hand, require a signed agreement to define the roles and percentages of profits. Corporations and LLCs have various reporting requirements with state governments and the federal government.

A corporation carries the least amount of personal liability since the law holds that it is its own entity. This means creditors and customers can sue the corporation, but they can’t gain access to any personal assets of the officers or shareholders. An LLC offers the same protection but with the tax benefits of a sole proprietorship. Partnerships share the liability between the partners as defined by their partnership agreement.

An owner of an LLC pays taxes just as a sole proprietor does: All profit is considered personal income and taxed accordingly at the end of the year.

“As a small business owner, you want to avoid double taxation in the early stages,” said Jennifer Friedman, principal at Rivetr. “The LLC structure prevents that and makes sure you’re not taxed as a company, but as an individual.”

Individuals in a partnership also claim their share of the profits as personal income. Your accountant may suggest quarterly or biannual advance payments to minimize the effect on your return. 

A corporation files its own tax returns each year, paying taxes on profits after expenses, including payroll. If you pay yourself from the corporation, you will pay personal taxes, such as those for Social Security and Medicare, on your personal return. 

If you want sole or primary control of the business and its activities, a sole proprietorship or an LLC might be the best choice. You can negotiate such control in a partnership agreement as well.

A corporation is constructed to have a board of directors that makes the major decisions that guide the company. A single person can control a corporation, especially at its inception, but as it grows, so does the need to operate it as a board-directed entity. Even for a small corporation, the rules intended for larger organizations – such as keeping notes of every major decision that affects the company – still apply.

Capital investment

If you need to obtain outside funding from an investor, venture capitalist or bank, you may be better off establishing a corporation. Corporations have an easier time obtaining outside funding than sole proprietorships.

Corporations can sell shares of stock and secure additional funding for growth, while sole proprietors can obtain funds only through their personal accounts, using their personal credit or taking on partners. An LLC can face similar struggles, although, as its own entity, it’s not always necessary for the owner to use their personal credit or assets.

Licenses, permits and regulations

In addition to legally registering your business entity, you may need specific licenses and permits to operate. Depending on the type of business and its activities, it may need to be licensed at the local, state and federal levels.

“States have different requirements for different business structures,” Friedman said. “Depending on where you set up, there could be different requirements at the municipal level as well. As you choose your structure, understand the state and industry you’re in. It’s not ‘one size fits all,’ and businesses may not be aware of what’s applicable to them.”

The structures discussed here apply only to for-profit businesses. If you’ve done your research and you’re still unsure which business structure is right for you, Friedman advises speaking with a specialist in business law.

Max Freedman and Matt D’Angelo contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.

• Best CRM Software for Nonprofits

Building Better Businesses

Insights on business strategy and culture, right to your inbox. Part of the business.com network.

• Find a Lawyer
• Ask a Lawyer
• Research the Law
• Law Schools
• Laws & Regs
• Newsletters
• Justia Connect
• Pro Membership
• Basic Membership
• Justia Lawyer Directory
• Platinum Placements
• Gold Placements
• Justia Elevate
• Justia Amplify
• PPC Management
• Google Business Profile
• Social Media
• Justia Onward Blog

Business Ownership Structures & Legal Implications

When forming a business, its legal structure is one of the owner’s most important practical decisions. Each type of structure has its own benefits and considerations that are affected by the business' size, the number of owners and employees, the industry, and other variables. Each state passes its own business formation laws, and not all states allow for every type of business structure. This means that the requirements for forming a particular type of business vary from state to state.

Sole Proprietorships

A sole proprietorship is the simplest kind of business. Most sole proprietorships are small businesses that have one employee — the owner. Forming a sole proprietorship is usually easy. In fact, in many states it requires no special action. Doing freelance or independent work under your own name is usually enough to form a sole proprietorship.

Two major benefits of structuring your business as a sole proprietorship are simplicity of formation and taxes. Since there usually are no formal steps required to form a sole proprietorship, there is no cost involved. Also, owners of sole proprietorships count the business’ income on their personal income tax returns. One drawback is that sole proprietorships do not offer any legal protection to their owners.

Partnerships

When two or more people start a business together, they can form a partnership. There are several types of partnerships, including general partnerships, limited partnerships, and limited liability partnerships. In addition, joint ventures have some aspects of partnerships. The amount of money contributed, control exerted over the business, and legal liability vary depending on which type of partnership is formed.

To form a partnership, most states require partners to register the business with the secretary of state. It is also important for the partners to formalize their relationship in a partnership agreement, which is a contract that addresses the major aspects of the business, including how it will be run, how profits are split, and what to do in the case of dissolution.

Consulting a lawyer experienced in business formation will give a business owner or potential owner a better understanding of each business structure in the context of their unique business situation. Justia offers a lawyer directory to simplify researching, comparing, and contacting attorneys who fit your legal needs.

Corporations

There are generally two types of corporations: C corporations and S corporations. Larger businesses with multiple employees are often structured as C corporations, whereas many smaller businesses choose to organize as S corporations. The primary difference between an S and C corporation is how taxes are paid. C corporations are taxed as independent entities. The income of an S corporation “passes through” to the individual tax returns of its owners. An LLC may choose to treat itself as an S corporation for tax purposes.

Non-Profit Organizations

The basic definition of a non-profit organization is a business that does not pass on excess revenue to owners, shareholders, or other investors. Instead, a non-profit uses this money to further its mission, which includes paying the salary of its owners and other employees.

Many non-profit organizations choose to incorporate to obtain federal and state tax exemptions, grants, and other benefits. One of the most common types of non-profit organizations is a 501(c)(3), named after a section of the IRS code, but there are other types.

Discover answers to frequently asked questions about business operations and formation.

Franchises are not a traditional business structure like the ones described above. A franchise is a business that licenses the name, logo, trade secrets, or other aspects of an existing business. For example, most fast food restaurants are franchises. In many cases, a person starting a franchise forms an LLC, partnership, or S corporation, and that company becomes the entity that pays the larger company for the right to use the name.

Last reviewed October 2023

Small Business Legal Center Contents   

• Small Business Legal Center
• First Steps in Starting a Business & Legal Formation
• Sole Proprietorships Under the Law
• General Partnerships Under the Law
• Limited Partnerships Under the Law
• Limited Liability Partnerships (LLPs) Under the Law
• Limited Liability Companies (LLCs) Under the Law
• Non-Profit Corporations Under the Law
• Franchises Under the Law
• Cooperatives Under the Law
• Benefit Corporations & Hybrid Entities Under the Law
• C Corporations Under the Law
• Close Corporations Under the Law
• Joint Ventures Under the Law
• S Corporations Under the Law
• Hiring and Managing Employees & Relevant Legal Considerations
• Business Management, Growth, and Related Legal Concerns
• Business Disputes & Related Lawsuits
• Social Media Influencer Marketing & Related Legal Issues
• Making a Business Contract
• Commercial Real Estate & the Law
• Small Business Law FAQs
• Find a Business Law Lawyer

Related Areas   

• Employment Law Center
• Intellectual Property Law Center
• Banking and Finance Law Center
• Tax Law Center
• Immigration Law Center
• Insurance Law Center
• Workers’ Compensation Law Center
• Bankruptcy Law Center
• Administrative Law Center
• Agricultural Law Center
• Cannabis Law Center
• Related Areas
• Bankruptcy Lawyers
• Business Lawyers
• Criminal Lawyers
• Employment Lawyers
• Estate Planning Lawyers
• Family Lawyers
• Personal Injury Lawyers
• Estate Planning
• Personal Injury
• Business Formation
• Business Operations
• Intellectual Property
• International Trade
• Real Estate
• Financial Aid
• Course Outlines
• Law Journals
• US Constitution
• Regulations
• Supreme Court
• Circuit Courts
• District Courts
• Dockets & Filings
• State Constitutions
• State Codes
• State Case Law
• Legal Blogs
• Business Forms
• Product Recalls
• Justia Connect Membership
• Justia Premium Placements
• Justia Elevate (SEO, Websites)
• Justia Amplify (PPC, GBP)
• Testimonials

Sole Proprietorship

Partnership, limited liability company (llc), corporation, templates and examples to download in word and pdf formats, how to choose the best legal structure for your business.

Deciding on a specific type of legal structure when you've just started your business journey can be complicated. It's hard to know exactly what the differences are, how the different structures can benefit you, and what any risks might be.

Luckily, it doesn't have to be so complicated! In fact, we've published this guide on everything you need to know about choosing the right legal structure for your business to help you along the way.

The most common business structures are sole proprietorships, partnerships, limited liability companies, and corporations. Here, you'll learn about each one in detail to help you choose the right fit for your business, as well as a non-profit, which you might consider for a new charitable business.

What type of structure you choose will make a big difference over the life of your business. It can have significant tax implications, as well as implications for your personal level of risk. It is not a decision that should be made lightly.

Below, we examine each common business structure in detail.

A sole proprietorship is the simplest type of business structure and the easiest to form and maintain. A sole proprietorship is basically a business that is you - and you are the business! For example, if you were a freelance writer on the internet and wanted to operate as a sole proprietorship, you wouldn't have to do anything at all to already be up and running, as long as you wanted to operate under your name.

In a sole proprietorship, no separate legal entity is created. If you'd like to operate under a special name, like a new business name or just a different name other than your own legal name, you would file what is called a "Doing Business As" (or DBA, as it is referred to) document with your state. All this document does is tell the state that you, as a legal person, are doing business under the name you've chosen for your business.

Because of the simplicity of the sole proprietorship, the way that your taxes are handled is also fairly simple. The taxes of the sole proprietorship would "pass through" to you, meaning you report any profit or loss on your own taxes and don't have to go through a separate process for the business.

One of the biggest drawbacks to a sole proprietorship is that you can be personally on the hook for any business liabilities - whether you make a big financial loss one year or whether your business gets sued. That's because in a sole proprietorship, there is no separation between you as a person and you as a business, so anything you own, in terms of assets, may be up-for-grabs by any creditors or the public to whom you are facing liability.

Another big drawback is that you may have a hard time raising any money. In a sole proprietorship, you can't issue stock in the company, so it could be hard to attract capital investors. You also may not have much success getting a bank loan, because banks generally don't favor lending to sole proprietorships.

How to form a sole proprietorship

To create a sole proprietorship, as mentioned above, you wouldn't have to file anything with your state other than a DBA, if you'd like. There can be fees associated with the DBA form, which vary per state. But keep in mind you might have separate documents to file, depending on your business. These could include special licenses or permits.

Why you might choose a sole proprietorship

A sole proprietorship is a good idea if you are a solopreneur with a small business and you are planning to keep it that way. It's very easy to form (you either have to file no documents or just one DBA) and you can get focused on starting your business right away. It's also very cheap to get started.

Especially if your business may not be facing a high level of risk, a sole proprietorship might be for you. A sole proprietorship wouldn't be recommended if, let's say, you ran a business that dealt with large amounts of other people's money on a regular business, or as a health professional, or really any area where the risk of being liable for something serious is high.

Final overview

Sole proprietorship benefits:.

1. It's cheap and easy to form.

2. Taxes are easy to keep track of.

3. You still have the option to have employees if you would like.

Sole proprietorship drawbacks:

1. There is a high level of personal risk for liabilities.

2. You may have difficulty raising funds.

If a sole proprietorship is the simplest business structure for an individual looking to operate their own small business, a partnership might be considered that for two or more people.

In a partnership, the two or more "partners," as they are called, each generally have a say in how the company runs (depending on the structure of the partnership) and each own a piece of the company, including its profits and losses.

In a partnership, you can also have different types of partners - general partners and limited partners - or you can have just a general partnership with all the same types of partners. General partners are equally responsible for everything: all the profits, any potential losses, any liabilities that might come up, and general responsibility for the company, including the amount of work done. Limited partners are those that are basically only partners for a financial reason, in that they invest but have not much else to do with how the company runs. Overall, partnerships with limited partners are a little rarer, as people like to go into partnerships with equal weight.

Imagine a situation where two people decide to open a yoga studio together. Their structure of choice may be a partnership.

A joint venture, formed with a Joint Venture Agreement , is a type of general partnership that only lasts for one specific project or a limited amount of time.

Joint venture is a generic term for any business relationship between two parties for a limited time. A joint venture could be for a brand new business, or just one marketing promotion, or even just a project between two already-formed businesses. In a joint venture, the parties could decide to form a temporary partnership, with a Partnership Agreement , but they don't have to: they can also retain their fully separate legal identities and just operate with a Joint Venture Agreement.

Taxes in a partnership can pass through, just like in a sole proprietorship.

The formation of a partnership, however, can be very complicated. Many states have adopted something called the Uniform Partnership Act, which makes the written Partnership Agreement very important. Partners will need to figure out everything from how they'll run the day-to-day business to what happens if the business folds or if someone wants to leave.

The Uniform Partnership Act is similar to a model statute or model law, in that it was drafted to be applicable uniformly, but states each had to individually adopt it. The Uniform Partnership Act, or UPA, gives guidance on how business partnerships should be formed, governed, and dissolved.

How to form a partnership

As mentioned above, the basis of partnership formation is the written Partnership Agreement, which sets out all of the details of the business relationship between the parties. Unless you also want to file a DBA, you won't need to file any partnership documents with your state.

Keep in mind, however, that as above, you may need specific licenses or permits for your particular business model.

Why you might choose a partnership

A partnership is a good idea if you are running a small business with another individual or a few individuals. As with a sole proprietorship, it's very easy to form (you either have to file no documents with the state or just one DBA) and you can get focused on starting your business right away. It's also very cheap to get started, just like a sole proprietorship.

If you're not sure of the trustworthiness of your potential partners, however, a partnership may not be the way to go for you, as you could be exposing yourself to a high level of risk just because of the actions of your partners. Either way, however, you should always have a well-written Partnership Agreement in place.

Partnership benefits:

1. It's relatively cheap to form.

2. Generally, unless you have a DBA, you won't need to file with the state.

3. Taxes pass through.

Partnership drawbacks:

1. The Partnership Agreement can be a complicated document.

2. It can be very risky if your partners are not trustworthy.

A Limited Liability Company, or LLC for short, has largely become the preferred form of structure for many small- to medium-sized businesses, and even for a lot of solo business owners. The reason for this is because it has a lot of benefits of other types of business structures, without as much of the risk.

In an LLC, there is a lot of customization available for how the business is run. LLCs can be used for small businesses or large ones. You can form an LLC just for yourself or have an LLC with many different members. The main benefit of an LLC is that your personal assets are shielded from liability - hence the name, "limited liability" company.

Taxes still pass through in LLCs. If you are a single-member LLC, the taxation is similar to a sole proprietorship. In a multi-member LLC, you are taxed on just your portion of the profits.

LLCs can, therefore, be formed for almost any purpose - for a single freelance artist or a group of people looking to open a bakery together, for example. LLCs can even be formed for professionals, like a legal or medical practice.

Since all business structures are formed according to the state, and not federal, government, the requirements to file and run the business, especially for the more complicated structures, can vary.

Forming an LLC is more complicated than either a sole proprietorship or partnership, as it involves filing specific documents in a specific form with the state.

How to form an LLC

An LLC is generally filed with your state by drafting Articles of Organization , the creation document for the company. Before this, you'll also have to ensure that you have a business name that will work by running a search on your proposed business name with your state's Secretary of State (usually this can be done easily on the Secretary of State website). An Operating Agreement is also a very good idea to have drafted (though it is not required), especially if you have more than one LLC member.

If you would like to operate under a special name for your LLC, you may also have to file a DBA.

Why you might choose an LLC

An LLC is a good idea when you want to have the maximum amount of liability protection for your business, either as a solo business owner or as part of a team and you don't want to build a corporation (more on that below). It's also a good idea if you still want the simplicity of taxation and the ability to organize your business as you like.

Whenever you file your LLC, make sure you keep all of the records separate to ensure your liability protection. Your organizational records, banking records, and, if applicable, personnel records all need to be records of the LLC specifically, not mixed in with your own personal records.

LLC benefits:

1. You are protected from personal liability.

2. Taxes pass through.

LLC drawbacks:

1. It's a little more expensive and complicated to form than a sole proprietorship or partnership.

2. Your liability is subject to the separateness of all of your records.

A corporation is generally the most complex legal structure , involving a lot of time and resources at its formation and then on through its life. A corporation is its own separate entity - often sometimes compared to a business version of a legal "person." In other words, the corporation is its own body separate and apart from you or any of the other owners, called "shareholders."

A corporation can take one of three main forms: the C corporation, the S corporation, or the lesser-known B corporation.

Most big companies in the United States, like Fortune 500 companies, are organized into a C corporation. It's the "traditional" corporate structure that people think of when they think of corporations. In a C corp, there are owners, called shareholders as noted above, who all put money into the business and receive shares, or stock, in return. The corporation gets taxed on its own - but so do any shareholder earnings, which means that with corporations, there is what's called "double taxation." All that means is that money into the corporation gets taxed as does money to the shareholders. In a C corp, there is almost no personal liability of the shareholders. Additionally, there is the possibility of the shareholders earning a lot of income if the corporation ever goes public.

The S corporation is a slightly different entity, similar to the C corp, but with the possibility of pass-through taxation. As discussed in the other business forms, what this means is that profits and losses can go straight to the owner or owners of the S corp, making it a good idea for small businesses. The S corp is a little more limited than the C corp in most states, however, as it can usually only be held by a certain limit of private individuals (for example, up to 25 owners that all have to be real people, rather than legal entities).

A B corporation is a lesser-known structure than the others and that's because it won't be applicable to most people. B Corps are designed for those that want to form essentially a C corporation but for some social good. The B stands for "benefit." A B Corp is very similar to a C Corp, except that sometimes the corporation receives certain tax breaks.

How to form a Corporation

Corporations are formed by filing a significant document covering the details of the corporation with the Secretary of State, called the Articles of Incorporation . Most corporations need to have a viable business name and go on to obtain a tax identification number from the Internal Revenue Service.

It's a good idea to also draft a document called the Corporate Bylaws , which set down the governing rules for the corporation.

Why you might choose a Corporation

You might decide to file a corporation if you are looking for a lot of growth potential for your business or if you knew you wanted to start bringing on shareholders right away. A corporation is a good idea if you plan to hire a lot of employees, as well.

It's probably not a good idea for very small business or individuals who don't plan to grow at a very high rate, as the expense of setting up and maintaining the structure, as well as the double taxation, would easily make it more cumbersome than its worth.

Corporation benefits:

2. Raising capital may be easier here than any other business form.

Corporation drawbacks:

1. It's more expensive and complicated to form than any other business form.

2. It's also complicated and expensive to maintain.

3. Double taxation may end up costing you more.

A non-profit is different than all of the other business structures - and the difference is in its name. Non-profits are created for a different reason than just generating profit; usually, the reason is some kind of social cause.

Non-profits are tax-exempt entities, and because of this, they need to have a specific purpose that is either charitable, religious, or educational.

How to form a Non-profit

Forming a non-profit requires Articles of Incorporation with the Secretary of State. You'll then need to file specifically to obtain tax-exempt status from both your state and the federal government.

If you plan to have multiple people in your non-profit, drafting Non-Profit Bylaws is a good idea.

Why you might choose a Non-profit

The option for a non-profit is really only there if you have a business that is for charitable, religious, or educational purposes. Once you decide that you do, then you must ensure you really aren't running a business for profit and that the primary purpose is for another reason. If those requirements are met, the non-profit is the best choice for you.

If you'd like to run a business for a social cause, but still want to have the main goal of earning a profit, a B corporation might be better suited to your needs. With a non-profit, one of the main activities will simply have to be fundraising to keep the business afloat. In a B corporation, however, you can do good and still turn a profit.

Non-profit benefits:

1. Tax-exempt status can be obtained.

2. It's the best structure for any primarily charitable business.

Non-profit drawbacks:

1. You must meet the requirements to open a non-profit.

2. Your business can't be run primarily to earn a profit.

When deciding what type of structure might be best for you, ask yourself the following questions:

1. How much time and effort am I willing to put in to set up the business at the beginning?

2. How much time and effort am I willing to put in to maintain the business over time?

3. Is pass-through taxation important to me?

4. What will be personal liabilities be?

5. Am I interested in easily raising capital?

Once you've asked yourself these questions, with the knowledge obtained from this guide, you'll be in a great place to decide what the best structure is for your needs.

About the Author: Anjali Nowakowski is a Legal Templates Programmer at Wonder.Legal and is based in the U.S.A.

• Partnership Agreement
• Articles Of Organization
• Non-Profit Bylaws
• Corporate Bylaws
• Articles Of Incorporation

Legal Form of Organization in Business Plan

The legal form of organization in business plan is used to decide how the company will function, how roles will be assigned and how relationships will work. 3 min read updated on February 01, 2023

The legal form of organization in business plan is used to decide how the organization will function, how roles will be arranged and assigned, and how relationships will work. These organizational steps should take place at the beginning of the business formation.

Starting a Business

The first step when beginning a business is to name the business. The name must be unique and not in use by another existing entity. The next step is to decide on the organization type your business will use. Each business entity has specific requirements on how they are run including how income is reported. The business types include:

• Sole proprietorship.
• Partnership.
• Limited Liability Company.
• Limited Liability Partnership.
• Corporation.
• S Corporation.
• Tax-exempt organization.

Each type has advantages and disadvantages that should be reviewed before making a final decision. However, the business type you choose isn't permanent. As the needs of your business change, the business entity type can be changed. Examples include:

• Changing a sole proprietorship to a partnership due to growth.
• Switching to a corporation to establish protection that comes with limited liability.

Limited Liability is attractive to business owners because it protects personal assets from any debts or obligations incurred by the corporation.

Business Type Requirements

A major component of selecting a business type is what is required to be legal and the tax implications.

• Applications to the state government are not required.
• Dependent on the state, registering the business may be required with the state and/or country.
• A business license may be required based on the type of business and state requirements.
• The IRS views all business activity as personal. When filing, personal and business income are seen as the same thing.
• A sole proprietorship is personally responsible for all aspects of the business. If the business is sold, it can impact any personal assets if you are found liable.
• In a general partnership, two or more sole proprietors are seen by the IRS as having equal responsibility.
• Any profit and loss distribution is determined by the partnership agreement and is then passed to the individual partners.
• Profit and loss distribution does not have to match the percentage of ownership.
• The partnership is not subject to income or franchise tax.
• The structure and tax implications are similar to a general partnership, but a limited partnership ( silent partner ) allows for ownership without the requirement of being actively involved in how the business is managed.
• Business liabilities are limited to the amount invested by the partner.
• Outside investors can be partners without taking on any liabilities.
• Personal liability protection is provided without having to meet the administrative and governance procedures.
• The Articles of Organization determine the ownership percentages, distribution of profit and losses, and voting rights. In corporations, this is determined by stock ownership.
• Most LLCs use the pass-through method of taxation. This means that taxes aren't paid by the LLC, but by at the personal tax level of the owners. The personal rate is lower than the corporate tax rate. When the LLC files taxes, no money is sent and an owners report is included to show the owners will pay the tax instead.
• Based on the state, the LLC is subject to a franchise tax .
• A corporation can be formed as for-profit or nonprofit.
• Corporations provide a shield from liabilities. This protection is only removed if the owners or board members have been found to be illegally running a corporation and have been breaking federal and/or state laws.
• Corporations can sell stock in the business.
• A Board of Directors is used to manage corporate policies and strategies. This is for both for-profit and nonprofit.
• Corporations continue to exist even in the event of the owner's death, or if owners leave.

If you need help with the legal form of organization in the business plan, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

Hire the top business lawyers and save up to 60% on legal fees

Content Approved by UpCounsel

• Types of Business Structures
• Best Type of Corporation for Small Business
• Partnership Business Entity: Everything You Need To Know
• Types of Companies LLC
• LLC Partnership
• Individual Ownership of Business
• Partnership Advantages and Disadvantages
• What Is Classification of Business According to Ownership?
• Types of Business Entities
• Benefits of a Close Corporation as Opposed to a Partnership

11.4 The Business Plan

Learning objectives.

By the end of this section, you will be able to:

• Describe the different purposes of a business plan
• Describe and develop the components of a brief business plan
• Describe and develop the components of a full business plan

Unlike the brief or lean formats introduced so far, the business plan is a formal document used for the long-range planning of a company’s operation. It typically includes background information, financial information, and a summary of the business. Investors nearly always request a formal business plan because it is an integral part of their evaluation of whether to invest in a company. Although nothing in business is permanent, a business plan typically has components that are more “set in stone” than a business model canvas , which is more commonly used as a first step in the planning process and throughout the early stages of a nascent business. A business plan is likely to describe the business and industry, market strategies, sales potential, and competitive analysis, as well as the company’s long-term goals and objectives. An in-depth formal business plan would follow at later stages after various iterations to business model canvases. The business plan usually projects financial data over a three-year period and is typically required by banks or other investors to secure funding. The business plan is a roadmap for the company to follow over multiple years.

Some entrepreneurs prefer to use the canvas process instead of the business plan, whereas others use a shorter version of the business plan, submitting it to investors after several iterations. There are also entrepreneurs who use the business plan earlier in the entrepreneurial process, either preceding or concurrently with a canvas. For instance, Chris Guillebeau has a one-page business plan template in his book The $100 Startup . 48 His version is basically an extension of a napkin sketch without the detail of a full business plan. As you progress, you can also consider a brief business plan (about two pages)—if you want to support a rapid business launch—and/or a standard business plan.

As with many aspects of entrepreneurship, there are no clear hard and fast rules to achieving entrepreneurial success. You may encounter different people who want different things (canvas, summary, full business plan), and you also have flexibility in following whatever tool works best for you. Like the canvas, the various versions of the business plan are tools that will aid you in your entrepreneurial endeavor.

Business Plan Overview

Most business plans have several distinct sections ( Figure 11.16 ). The business plan can range from a few pages to twenty-five pages or more, depending on the purpose and the intended audience. For our discussion, we’ll describe a brief business plan and a standard business plan. If you are able to successfully design a business model canvas, then you will have the structure for developing a clear business plan that you can submit for financial consideration.

Both types of business plans aim at providing a picture and roadmap to follow from conception to creation. If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept.

The full business plan is aimed at executing the vision concept, dealing with the proverbial devil in the details. Developing a full business plan will assist those of you who need a more detailed and structured roadmap, or those of you with little to no background in business. The business planning process includes the business model, a feasibility analysis, and a full business plan, which we will discuss later in this section. Next, we explore how a business plan can meet several different needs.

Purposes of a Business Plan

A business plan can serve many different purposes—some internal, others external. As we discussed previously, you can use a business plan as an internal early planning device, an extension of a napkin sketch, and as a follow-up to one of the canvas tools. A business plan can be an organizational roadmap , that is, an internal planning tool and working plan that you can apply to your business in order to reach your desired goals over the course of several years. The business plan should be written by the owners of the venture, since it forces a firsthand examination of the business operations and allows them to focus on areas that need improvement.

Refer to the business venture throughout the document. Generally speaking, a business plan should not be written in the first person.

A major external purpose for the business plan is as an investment tool that outlines financial projections, becoming a document designed to attract investors. In many instances, a business plan can complement a formal investor’s pitch. In this context, the business plan is a presentation plan, intended for an outside audience that may or may not be familiar with your industry, your business, and your competitors.

You can also use your business plan as a contingency plan by outlining some “what-if” scenarios and exploring how you might respond if these scenarios unfold. Pretty Young Professional launched in November 2010 as an online resource to guide an emerging generation of female leaders. The site focused on recent female college graduates and current students searching for professional roles and those in their first professional roles. It was founded by four friends who were coworkers at the global consultancy firm McKinsey. But after positions and equity were decided among them, fundamental differences of opinion about the direction of the business emerged between two factions, according to the cofounder and former CEO Kathryn Minshew . “I think, naively, we assumed that if we kicked the can down the road on some of those things, we’d be able to sort them out,” Minshew said. Minshew went on to found a different professional site, The Muse , and took much of the editorial team of Pretty Young Professional with her. 49 Whereas greater planning potentially could have prevented the early demise of Pretty Young Professional, a change in planning led to overnight success for Joshua Esnard and The Cut Buddy team. Esnard invented and patented the plastic hair template that he was selling online out of his Fort Lauderdale garage while working a full-time job at Broward College and running a side business. Esnard had hundreds of boxes of Cut Buddies sitting in his home when he changed his marketing plan to enlist companies specializing in making videos go viral. It worked so well that a promotional video for the product garnered 8 million views in hours. The Cut Buddy sold over 4,000 products in a few hours when Esnard only had hundreds remaining. Demand greatly exceeded his supply, so Esnard had to scramble to increase manufacturing and offered customers two-for-one deals to make up for delays. This led to selling 55,000 units, generating $700,000 in sales in 2017. 50 After appearing on Shark Tank and landing a deal with Daymond John that gave the “shark” a 20-percent equity stake in return for $300,000, The Cut Buddy has added new distribution channels to include retail sales along with online commerce. Changing one aspect of a business plan—the marketing plan—yielded success for The Cut Buddy.

Link to Learning

Watch this video of Cut Buddy’s founder, Joshua Esnard, telling his company’s story to learn more.

If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept. This version is used to interest potential investors, employees, and other stakeholders, and will include a financial summary “box,” but it must have a disclaimer, and the founder/entrepreneur may need to have the people who receive it sign a nondisclosure agreement (NDA) . The full business plan is aimed at executing the vision concept, providing supporting details, and would be required by financial institutions and others as they formally become stakeholders in the venture. Both are aimed at providing a picture and roadmap to go from conception to creation.

Types of Business Plans

The brief business plan is similar to an extended executive summary from the full business plan. This concise document provides a broad overview of your entrepreneurial concept, your team members, how and why you will execute on your plans, and why you are the ones to do so. You can think of a brief business plan as a scene setter or—since we began this chapter with a film reference—as a trailer to the full movie. The brief business plan is the commercial equivalent to a trailer for Field of Dreams , whereas the full plan is the full-length movie equivalent.

Brief Business Plan or Executive Summary

As the name implies, the brief business plan or executive summary summarizes key elements of the entire business plan, such as the business concept, financial features, and current business position. The executive summary version of the business plan is your opportunity to broadly articulate the overall concept and vision of the company for yourself, for prospective investors, and for current and future employees.

A typical executive summary is generally no longer than a page, but because the brief business plan is essentially an extended executive summary, the executive summary section is vital. This is the “ask” to an investor. You should begin by clearly stating what you are asking for in the summary.

In the business concept phase, you’ll describe the business, its product, and its markets. Describe the customer segment it serves and why your company will hold a competitive advantage. This section may align roughly with the customer segments and value-proposition segments of a canvas.

Next, highlight the important financial features, including sales, profits, cash flows, and return on investment. Like the financial portion of a feasibility analysis, the financial analysis component of a business plan may typically include items like a twelve-month profit and loss projection, a three- or four-year profit and loss projection, a cash-flow projection, a projected balance sheet, and a breakeven calculation. You can explore a feasibility study and financial projections in more depth in the formal business plan. Here, you want to focus on the big picture of your numbers and what they mean.

The current business position section can furnish relevant information about you and your team members and the company at large. This is your opportunity to tell the story of how you formed the company, to describe its legal status (form of operation), and to list the principal players. In one part of the extended executive summary, you can cover your reasons for starting the business: Here is an opportunity to clearly define the needs you think you can meet and perhaps get into the pains and gains of customers. You also can provide a summary of the overall strategic direction in which you intend to take the company. Describe the company’s mission, vision, goals and objectives, overall business model, and value proposition.

Rice University’s Student Business Plan Competition, one of the largest and overall best-regarded graduate school business-plan competitions (see Telling Your Entrepreneurial Story and Pitching the Idea ), requires an executive summary of up to five pages to apply. 51 , 52 Its suggested sections are shown in Table 11.2 .

Are You Ready?

Create a brief business plan.

Fill out a canvas of your choosing for a well-known startup: Uber, Netflix, Dropbox, Etsy, Airbnb, Bird/Lime, Warby Parker, or any of the companies featured throughout this chapter or one of your choice. Then create a brief business plan for that business. See if you can find a version of the company’s actual executive summary, business plan, or canvas. Compare and contrast your vision with what the company has articulated.

• These companies are well established but is there a component of what you charted that you would advise the company to change to ensure future viability?
• Map out a contingency plan for a “what-if” scenario if one key aspect of the company or the environment it operates in were drastically is altered?

Full Business Plan

Even full business plans can vary in length, scale, and scope. Rice University sets a ten-page cap on business plans submitted for the full competition. The IndUS Entrepreneurs , one of the largest global networks of entrepreneurs, also holds business plan competitions for students through its Tie Young Entrepreneurs program. In contrast, business plans submitted for that competition can usually be up to twenty-five pages. These are just two examples. Some components may differ slightly; common elements are typically found in a formal business plan outline. The next section will provide sample components of a full business plan for a fictional business.

Executive Summary

The executive summary should provide an overview of your business with key points and issues. Because the summary is intended to summarize the entire document, it is most helpful to write this section last, even though it comes first in sequence. The writing in this section should be especially concise. Readers should be able to understand your needs and capabilities at first glance. The section should tell the reader what you want and your “ask” should be explicitly stated in the summary.

Describe your business, its product or service, and the intended customers. Explain what will be sold, who it will be sold to, and what competitive advantages the business has. Table 11.3 shows a sample executive summary for the fictional company La Vida Lola.

Business Description

This section describes the industry, your product, and the business and success factors. It should provide a current outlook as well as future trends and developments. You also should address your company’s mission, vision, goals, and objectives. Summarize your overall strategic direction, your reasons for starting the business, a description of your products and services, your business model, and your company’s value proposition. Consider including the Standard Industrial Classification/North American Industry Classification System (SIC/NAICS) code to specify the industry and insure correct identification. The industry extends beyond where the business is located and operates, and should include national and global dynamics. Table 11.4 shows a sample business description for La Vida Lola.

Industry Analysis and Market Strategies

Here you should define your market in terms of size, structure, growth prospects, trends, and sales potential. You’ll want to include your TAM and forecast the SAM . (Both these terms are discussed in Conducting a Feasibility Analysis .) This is a place to address market segmentation strategies by geography, customer attributes, or product orientation. Describe your positioning relative to your competitors’ in terms of pricing, distribution, promotion plan, and sales potential. Table 11.5 shows an example industry analysis and market strategy for La Vida Lola.

Competitive Analysis

The competitive analysis is a statement of the business strategy as it relates to the competition. You want to be able to identify who are your major competitors and assess what are their market shares, markets served, strategies employed, and expected response to entry? You likely want to conduct a classic SWOT analysis (Strengths Weaknesses Opportunities Threats) and complete a competitive-strength grid or competitive matrix. Outline your company’s competitive strengths relative to those of the competition in regard to product, distribution, pricing, promotion, and advertising. What are your company’s competitive advantages and their likely impacts on its success? The key is to construct it properly for the relevant features/benefits (by weight, according to customers) and how the startup compares to incumbents. The competitive matrix should show clearly how and why the startup has a clear (if not currently measurable) competitive advantage. Some common features in the example include price, benefits, quality, type of features, locations, and distribution/sales. Sample templates are shown in Figure 11.17 and Figure 11.18 . A competitive analysis helps you create a marketing strategy that will identify assets or skills that your competitors are lacking so you can plan to fill those gaps, giving you a distinct competitive advantage. When creating a competitor analysis, it is important to focus on the key features and elements that matter to customers, rather than focusing too heavily on the entrepreneur’s idea and desires.

Operations and Management Plan

In this section, outline how you will manage your company. Describe its organizational structure. Here you can address the form of ownership and, if warranted, include an organizational chart/structure. Highlight the backgrounds, experiences, qualifications, areas of expertise, and roles of members of the management team. This is also the place to mention any other stakeholders, such as a board of directors or advisory board(s), and their relevant relationship to the founder, experience and value to help make the venture successful, and professional service firms providing management support, such as accounting services and legal counsel.

Table 11.6 shows a sample operations and management plan for La Vida Lola.

Marketing Plan

Here you should outline and describe an effective overall marketing strategy for your venture, providing details regarding pricing, promotion, advertising, distribution, media usage, public relations, and a digital presence. Fully describe your sales management plan and the composition of your sales force, along with a comprehensive and detailed budget for the marketing plan. Table 11.7 shows a sample marketing plan for La Vida Lola.

Financial Plan

A financial plan seeks to forecast revenue and expenses; project a financial narrative; and estimate project costs, valuations, and cash flow projections. This section should present an accurate, realistic, and achievable financial plan for your venture (see Entrepreneurial Finance and Accounting for detailed discussions about conducting these projections). Include sales forecasts and income projections, pro forma financial statements ( Building the Entrepreneurial Dream Team , a breakeven analysis, and a capital budget. Identify your possible sources of financing (discussed in Conducting a Feasibility Analysis ). Figure 11.19 shows a template of cash-flow needs for La Vida Lola.

Entrepreneur In Action

Laughing man coffee.

Hugh Jackman ( Figure 11.20 ) may best be known for portraying a comic-book superhero who used his mutant abilities to protect the world from villains. But the Wolverine actor is also working to make the planet a better place for real, not through adamantium claws but through social entrepreneurship.

A love of java jolted Jackman into action in 2009, when he traveled to Ethiopia with a Christian humanitarian group to shoot a documentary about the impact of fair-trade certification on coffee growers there. He decided to launch a business and follow in the footsteps of the late Paul Newman, another famous actor turned philanthropist via food ventures.

Jackman launched Laughing Man Coffee two years later; he sold the line to Keurig in 2015. One Laughing Man Coffee café in New York continues to operate independently, investing its proceeds into charitable programs that support better housing, health, and educational initiatives within fair-trade farming communities. 55 Although the New York location is the only café, the coffee brand is still distributed, with Keurig donating an undisclosed portion of Laughing Man proceeds to those causes (whereas Jackman donates all his profits). The company initially donated its profits to World Vision, the Christian humanitarian group Jackman accompanied in 2009. In 2017, it created the Laughing Man Foundation to be more active with its money management and distribution.

• You be the entrepreneur. If you were Jackman, would you have sold the company to Keurig? Why or why not?
• Would you have started the Laughing Man Foundation?
• What else can Jackman do to aid fair-trade practices for coffee growers?

What Can You Do?

Textbooks for change.

Founded in 2014, Textbooks for Change uses a cross-compensation model, in which one customer segment pays for a product or service, and the profit from that revenue is used to provide the same product or service to another, underserved segment. Textbooks for Change partners with student organizations to collect used college textbooks, some of which are re-sold while others are donated to students in need at underserved universities across the globe. The organization has reused or recycled 250,000 textbooks, providing 220,000 students with access through seven campus partners in East Africa. This B-corp social enterprise tackles a problem and offers a solution that is directly relevant to college students like yourself. Have you observed a problem on your college campus or other campuses that is not being served properly? Could it result in a social enterprise?

Work It Out

Franchisee set out.

A franchisee of East Coast Wings, a chain with dozens of restaurants in the United States, has decided to part ways with the chain. The new store will feature the same basic sports-bar-and-restaurant concept and serve the same basic foods: chicken wings, burgers, sandwiches, and the like. The new restaurant can’t rely on the same distributors and suppliers. A new business plan is needed.

• What steps should the new restaurant take to create a new business plan?
• Should it attempt to serve the same customers? Why or why not?

This New York Times video, “An Unlikely Business Plan,” describes entrepreneurial resurgence in Detroit, Michigan.

• 48 Chris Guillebeau. The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future . New York: Crown Business/Random House, 2012.
• 49 Jonathan Chan. “What These 4 Startup Case Studies Can Teach You about Failure.” Foundr.com . July 12, 2015. https://foundr.com/4-startup-case-studies-failure/
• 50 Amy Feldman. “Inventor of the Cut Buddy Paid YouTubers to Spark Sales. He Wasn’t Ready for a Video to Go Viral.” Forbes. February 15, 2017. https://www.forbes.com/sites/forbestreptalks/2017/02/15/inventor-of-the-cut-buddy-paid-youtubers-to-spark-sales-he-wasnt-ready-for-a-video-to-go-viral/#3eb540ce798a
• 51 Jennifer Post. “National Business Plan Competitions for Entrepreneurs.” Business News Daily . August 30, 2018. https://www.businessnewsdaily.com/6902-business-plan-competitions-entrepreneurs.html
• 52 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition . March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf
• 53 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition. March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf; Based on 2019 RBPC Competition Rules and Format April 4–6, 2019. https://rbpc.rice.edu/sites/g/files/bxs806/f/2019-RBPC-Competition-Rules%20-Format.pdf
• 54 Foodstart. http://foodstart.com
• 55 “Hugh Jackman Journey to Starting a Social Enterprise Coffee Company.” Giving Compass. April 8, 2018. https://givingcompass.org/article/hugh-jackman-journey-to-starting-a-social-enterprise-coffee-company/

As an Amazon Associate we earn from qualifying purchases.

This book may not be used in the training of large language models or otherwise be ingested into large language models or generative AI offerings without OpenStax's permission.

Want to cite, share, or modify this book? This book uses the Creative Commons Attribution License and you must attribute OpenStax.

Access for free at https://openstax.org/books/entrepreneurship/pages/1-introduction

• Authors: Michael Laverty, Chris Littel
• Publisher/website: OpenStax
• Book title: Entrepreneurship
• Publication date: Jan 16, 2020
• Location: Houston, Texas
• Book URL: https://openstax.org/books/entrepreneurship/pages/1-introduction
• Section URL: https://openstax.org/books/entrepreneurship/pages/11-4-the-business-plan

© Jan 4, 2024 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution License . The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.

Legal Structure of a Business

The different business structures impact taxes, financing, and personal liability. See which legal structure suits your needs.

One of the first decisions a new business owner makes is what type of legal structure the business will have. There are several different ways to set up your company, and each will have implications as far as taxes, financing, and your personal liability.

Let’s take a look at the options, and the benefits and drawbacks of each. Of course, your individual circumstances will dictate which structure makes the most sense for you, so be sure to get professional legal advice before making a decision.

Sole Proprietorship

A sole proprietorship is a business owned by a single individual. This is the easiest type of structure to set up. That doesn’t mean there are no regulations to follow, however. The procedure will vary from state to state, but the steps to acting as a sole proprietorship are very simple.

BUSINESS NAME CHOICE

Business name registration, licenses and permits, employee identification number (ein).

It’s important for tax purposes to keep your business and personal finances separate, so set up a business bank account and get a business credit card. A sole proprietorship doesn’t offer you any personal protection from legal claims against the business, so it’s a good idea to get liability insurance, as well. You will also be personally responsible for the business’s financial obligations, so consider a business liability insurance policy too.

Depending on what type of business you’re in, you may have to report sales or other taxes. Income taxes will be filed as personal income on your individual return with a Schedule C attached. You pay all the taxes an employer would otherwise pay for you, such as contributions to Social Security and Medicare, and you may have to pay estimated taxes throughout the year. Speak with an accountant and make sure you understand and follow through on the requirements.

Partnership

A partnership is when two or more people combine to share in the profits or losses of a business. Similar to a sole proprietorship, money made or lost is reported personally by the partners on their individual income tax returns. Generally, the steps to forming a partnership are similar to those for sole proprietorships, and again, may vary slightly from state to state.

There are a few different types of partnerships, but the two most common are general and limited.

General Partnerships

In a general partnership legal structure, ownership and management responsibility are usually shared equally between the people involved. If a different distribution is being used, you would spell that out in your partnership agreement.

Limited Partnerships

Limited partnerships are usually formed when one person is doing most of the actual work and another (or others) have invested money. The general partner will typically run the business, and the other partners will have limits on their involvement. Again, these would be outlined in your agreement. You are not legally required to have a written partnership agreement , but it is smart business practice to do so.

Managing A Partnership Legal Structure

Another thing to keep in mind about partnerships is that if a partner wants to leave, the other(s) will have to buy him or her out, or dissolve the business. This is another reason it’s smart to have a written agreement, one that includes a buy-sell or buyout agreement.

In a partnership, the partners are still personally liable for all obligations of the business. That means if the business defaults, a creditor can come after your house, car or anything else you own. (Limited partners may have limited liability.)

Another aspect of a partnership is that any of the individual partners can legally commit the business to a contract, even one that the other partners may not agree with or even be aware of. Between being responsible for the business’s debt and the ability of each partner to bind the partnership to contracts, it’s vitally important to trust anyone you’re considering entering into a partnership with, and to also be sure that your personalities will complement each other and you’ll be able to work together.

As with sole proprietorships, the income or loss of a partnership passes through to the owners, and is accounted for on their individual tax returns.

Corporation

A corporation, or C corporation, is an independent entity for both legal and tax purposes, separate from the people who own it or run it. A corporation can raise money by selling stock, and a corporation will continue indefinitely, even if one of the shareholders dies or sells his or her shares. Owners of a corporation are not personally responsible for the financial obligations of the corporation, nor are they personally liable in case of lawsuits.

The corporation legal structure can be complicated to set up and manage, but it’s an independent entity that may benefit business owners in the long run.

Because of this separate status, the corporation itself pays taxes; the income is not passed through to the owners’ individual tax returns. Owners would pay taxes just as any other employee of a business would: on the money they get for salaries, bonuses and other benefits. One thing to be aware of is the potential for double taxation. As an owner, you would pay taxes on whatever salary you draw from the company, but you would also pay corporate taxes on the profits of the business.

It’s a far more complicated, expensive, and lengthier process to set up a corporation. The rules for forming corporations are set by each state, and each has a list of regulations, as well. You need to prepare articles of incorporation and a set of bylaws describing how the corporation will be run. You’ll most likely need an attorney to help you with the paperwork and certifications involved.

Once you’re up and running, you’ll probably need an accountant to handle the more complicated tax calculations and filings. You’ll need to register with the IRS and state and local tax agencies, get an EIN, and pay taxes on your corporate profit. You’ll also need to pay a portion of your employees’ Social Security and Medicare taxes.

S Corporation

If your business qualifies according to the IRS rules , you might choose to become a special class of corporation known as an S corp. To be classified as an S corporation, you still have to become a corporation, following the general procedure outlined above.

Like a C corporation, an S corp is also a separate entity from its owners, so your financial liability would still be limited, but its profits or losses would pass through to your individual tax return. The business itself is not taxed, so you’re not open to the potential of being taxed twice.

S corporations can only issue common stock, which experts say can make it harder to raise capital. S corps can also only be owned by individuals, estates, and some kinds of trusts, so you limit the type of investors you can attract.

Limited Liability Company (LLC)

In many ways, this type of structure offers the benefits of both a corporation and a partnership. The owners are protected from having personal liability, as they would in a corporation, but an LLC follows the more streamlined structure of a partnership. To set up an LLC, you have to file with your state, and some states will also require an operating agreement, which is similar to a partnership agreement. LLCs cannot sell stock, although you can give a percentage of ownership to outside investors.

The LLC legal structure offers the benefits of both a corporation and a partnership for many business owners.

In an LLC, the owners are known as “members.” Members can be people, partnerships, corporations, or even other LLCs. The profits and losses are passed through LLCs to their members, who report them on their individual returns, just as in a partnership.

As with partnerships and sole proprietorships, LLC members are considered self-employed, and have to make their own tax contributions toward Medicare and Social Security. An LLC can also request S corporation status, which may offer other tax benefits. An attorney or accountant could advise you about that.

Why might you opt for an LLC instead of an S corporation? Filing as an LLC means less paperwork and fewer costs to get started. There are also fewer restrictions on how the profits in an LLC are shared among its members. On the downside, similar to partnerships, if a member leaves, in many states the business is dissolved, although you can put provisions about that in your operating agreement.

Legal Structures Are Not Set in Stone

One very important thing to keep in mind is that you can change the organizational structure of your business if your situation changes. It’s possible to start off as a sole proprietorship and convert to an LLC or corporation. As your needs grow and change, the structure of your business can change with them. As always, it’s best to consult with your attorney and accountant about what would be most suitable for you.

Apply for a Loan

Get started.

Loans from $5,000 - $100,000 with transparent terms and no prepayment penalty. Tell us a little about yourself, your business and receive your quote in minutes without impacting your credit score.

Thanks for applying!

Loans are originated and funded through our lending arm, Accion Opportunity Fund Community Development. By clicking “Continue to Application,” you consent to, Accion Opportunity Fund Community Development’s Terms of Use and Privacy Policy ; and to receive emails, calls and texts , potentially for marketing purposes, including autodialed or pre-recorded calls. You may opt out of receiving certain communications as provided in our Privacy Policy .

You are using an outdated browser. Please upgrade your browser to improve your experience.

The Basic Legal Aspects of an Effective Business Plan

As we enter the final month of the year and excitement grows for the holiday season many people may not realize December also holds a special designation for business owners and aspiring entrepreneurs. It is National Write a Business Plan Month . And while the holidays often serve as a time for reflection on the year that was, developing a business plan forces business owners to look forward and put constructive thought into the years ahead.

No matter what stage a business is at, it is always beneficial to develop and strengthen a strategic plan. A well-drafted business plan serves as a strong foundation for a successful business. The plan acts as a road map directing what the business will do, how it will grow, the markets its will serve, the manner in which it will operate, the struggles it may encounter and the goals it hopes to achieve. Similar to a road map, your business may encounter roadblocks and detours requiring you to rethink the plan’s path, but ultimately an effective business plan will force the owner to think critically and objectively about the future of the business and should continuously serve as a compass for the company going forward.

Along with addressing overarching business matters, the development of the business plan presents a great opportunity to address certain legal matters that may seem minor today but can prevent major stress down the road.

One of the biggest decisions a business faces at the outset is determining how it will be structured. The chosen structure will have lasting implications related to business operations, liability protections, and tax strategies. The most common business structures are limited liability companies, corporations, and partnerships. The entity you chose will likely require state filing and may necessitate obtaining a tax identification number from the IRS and State Department of Revenue.

In addition to determining business entity type, an effective business plan must consider all applicable federal, state and local laws that may be applicable to its operations for each location it intends to conduct business. These considerations keep the business ahead of the curve when it comes to obtaining necessary licenses or permits to operate. The business must also consider local zoning ordinances for each physical location from which it will operate in order to ensure the location is suitable for the operation. Effective planning in these areas helps avoid future hurdles that could delay expansion into a new market and hinder growth.

Finally, the business should consider contracts and legal agreements that may be necessary in its operations. While many of these documents will develop over time and need not be specifically addressed in the business plan, they should be given some forethought as the business considers its operations. Specific contracts that may require particular attention in the business plan are Confidentiality and Non-Disclosure Agreements. These documents are not absolutely necessary in every business venture, but in the right circumstances they can be crucial to the development or growth of the business. By entering into Confidentiality and Non-Disclosure Agreements the business owner will be able to talk freely about the innovative ideas and creative potential of the business without concern that the information will be stolen or publicly disclosed. The more sensitive the information the higher the likelihood the business will require strong Confidentiality and Non-Disclosure agreements.

Ultimately, these are just a few of the issues a business owner must address and there are many other matters that should be taken into consideration when developing a strategic plan. A business owner need not develop the plan alone. They may consult with experts in tax, law, and business as well as trusted individuals invested emotionally or financially in their success. While the business plan will not address every detail that may impact the company, it should plot the road the business will follow. Establishing an effective plan for the business will pave a way that leads to success down the road.

• Business (7)
• Estate Planning (19)
• Franchise & Distribution Law (5)
• General (3)
• Labor & Employment (12)
• Municipal Government (1)
• Personal Injury (1)
• Real Estate (1)

Recent Posts

Incorporating your pet into your estate planning: it’s not as unusual as you may think…, non-competes no more: the 120 days begins to toll may 7, understanding workplace investigations, we value your privacy, privacy overview.

• 800-232-LOWE (5693)
• [email protected]
• 58220 Decatur Road, Cassopolis, MI 49031

How to Determine the Legal Structure of Your Business

Digital library > building and inspiring an organization > forms of business, “how to determine the legal structure of your business”.

Should your business be a proprietorship, partnership, limited partnership, C corporation, S corporation, or LLC? Be informed to help determine the best business structure for you.

This Business Builder will provide you with the information you need to help determine the best business structure for you.

WHAT YOU SHOULD KNOW BEFORE GETTING STARTED [ top ]

Going into business requires not only the knowledge of your trade but the understanding of the laws on a local, state, and federal level. There are many reasons today for owner-managers of small businesses to look at the legal business structure of their firms. Changing laws and the need for capital are just two of the many factors which require owner-managers to carefully evaluate which legal structures best meet their needs. This Business Builder will provide you with the information you need to help determine the best business structure for you.

As a small business owner, you must play many roles in order to keep the business functioning smoothly and properly. However, there are times that you shouldn’t try to be lawyer, accountant, marketing specialist, foreman, salesman, etc. Instead, take advantage of the professional advice that is so readily available. A good attorney or CPA can help you interpret the many legal and technical issues which pertain to any one or all of the legal structures for business. Your savings in time and money for utilizing a professional advisor can far outweigh the possible expense of missteps and wrong turns when selecting the business structure for your firm. Because laws are constantly changing, it is best to consult an attorney or accountant for the latest in regulations and requirements before you decide on the right business structure for you.

WHAT ARE MY ALTERNATIVES? [ top ]

In order to intelligently select the legal structure of your business, you must be knowledgeable about the alternatives from which you may choose. A business venture can be structured in several ways; however, the law classifies businesses so that most fall into one of three legal forms. They are:

There are also variations on some of these basic legal forms — the S corporation, the limited partnership, and the limited liability company (LLC), a relatively new form of business organization, which has gained legal status in a majority of states.

Each business structure you are about to review has its advantages and disadvantages. There is no good or bad structure. The optimum choice depends solely on your personal situation. Read through each section carefully. Then, decide which structure is best suited to your business needs.

Sole Proprietorship

The simplest (and least amount of paperwork) of any of the legal business structures is the sole proprietorship. To establish a sole proprietorship, you will need a good idea, a lot of determination, and an endless supply of energy for the hard work ahead. However, the only paperwork you’ll need is that required for filing a fictitious name (if you decide not to use your own) and whatever licenses you’ll need to begin your operations. You are not required to perform any formal action to set up a sole proprietorship. Consequently, there is no need to hire professionals to file required government documents to get you started. You do it all yourself!

With nearly three quarters of all businesses operating as sole proprietorships, this business structure is by far the most popular of any of the structures. In fact, many businesses that are partnerships and corporations today, initially started out as sole proprietorships and changed when it became advantageous to do so.

As a sole proprietorship, the business is owned and operated by one person — you! You don’t have any partners to confer with or boards to answer to. The law recognizes you and the business as one in the same. The business is you; you are the business. And it’s this single entity status that is responsible for the advantages of setting up as a sole proprietor and the disadvantages, as well.

For example, Gina has decided to start up her own advertising firm on a part-time basis. Her plan is to continue her job as Director of Advertising for her town’s leading newspaper until she is making enough money on her own to go it alone full-time. In the first years of operating her part-time business, Gina is able to off-set her income from the newspaper with the net losses from her part-time business to reduce the overall income tax she must pay as an individual.

Disadvantages

For instance, let’s say your widget business has suffered a significant loss in market share due to increased competition from the Pacific Rim. You’ve done everything in your power to hold on, but you’re left with no other alternative but to liquidate. Unfortunately, after your "going out of business sale" you still have some outstanding debts, and these creditors are unwilling to work out any kind of extended payment plan whatsoever to satisfy the debt. Therefore, you are forced to sell your house and auction your belongings to cover the debt. Both you and your business are ruined.

General Partnership

According to the Uniform Partnership Act (which most states have adopted), a partnership is an "association of two or more persons to carry on as co-owners of a business for profit." Frequently, you may decide to take on a partner because he has skills or expertise that you may lack. However, take special care in choosing a suitable partner. Don’t select the first person that offers to make an investment in your company. A partnership is a marriage in many ways; however, few take the time and put in the effort to pick a partner that they would in choosing a spouse. Nevertheless, many a business has had to close its doors because the business union did not work.

In many ways the partnership structure is very similar to the sole proprietorship. For instance, there is unlimited liability for partners and a limited life of the business. Where it differs, however, is that you can share the work, financial pressures, decision-making, and everything else that goes along with the business with a trusted colleague. If you’ve selected your partners well, you can expect to reap synergistic benefits.

There can be many different variations on the partnership theme, depending upon how active your partners are. You can have general partners who share in the managing, financing and liability of the company, or you can have limited partners, who do not take an active role in the managing of the business but whose liability is limited to their investment. More on limited partnerships will be discussed later in the Business Builder. Also, partnerships don’t necessarily have to be divided up equally, either. It is perfectly legitimate for one partner to have majority ownership.

For example, Larry’s Limited, a wholesaler of farm equipment, was structured as a general partnership with Larry, Harry, and Barry as co-owners. Because of the various levels of experience and capital that each owner brought to the business, it was decided that each partner’s share of the business would directly relate to his contribution. Since Larry had formerly run a similar company and was providing the majority of seed capital for startup, it was decided that he would retain 50% share of the business while Harry and Barry each would have 25%.

Now, let’s look at some of the major advantages and disadvantages of a partnership.

Partnership Agreement

Although not legally required, a Partnership Agreement, also known as Articles of Partnership, are often drawn up to outline the contribution of each of the partners into the business. These articles determine the roles of the partners in the business relationship, whether financial, material, or managerial. Following are some you might want to include in your "written articles of partnership" to protect the best interest of your partnership.

Limited Partnerships

In a limited partnership, the law provides for a special kind of arrangement whereby certain partners have limited personal liability. The limited partnership is more regulated than the more common general partnership, but it allows investors who will not be actively involved in the partnership’s operations to become partners without being exposed to unlimited liabilities of the business’ debts if it should go out of business.

A limited partner risks only his or her investment but in exchange for this must allow one or more general partners to exercise control over the business. In fact, if the limited partner becomes involved in the operations of the partnership, he or she may lose his or her protected status as a limited partner. The general partners in a limited partnership are fully liable for the debts of the partnership.

There are state laws requiring certain formalities in a limited partnership that are not required in other partnerships. To qualify for their special status, limited partnerships must usually file a Certificate of Limited Partnership with the secretary of state or other state and county offices. Establishing a limited partnership also requires a written partnership agreement.

Corporation

This type of business structure is considered the most formalized and complex form of business organization. It is costlier, more difficult and requires more paperwork.

A corporation is a separate legal entity which is organized in accordance with state and federal statutes. Ownership is divided into shares of stock. The business activities are dictated by a charter stating the powers and limitations of the particular business. Corporations which do business in more than one state must comply with the Federal laws regarding interstate commerce and with the state laws, which may vary considerably.

Now, let’s look at some of the advantages and disadvantages of a corporation.

An S corporation is like any other corporation in terms of corporate law requirements, limited liability of shareholders, and all other corporate aspects, except tax treatment. An S corporation is a regular corporation which has essentially elected to be treated somewhat like a partnership for federal income tax purposes. S corporations do not pay tax at the corporate level. Instead, taxable income, losses, deductions, and credits are passed through to the corporation’s stockholders. Tax law changes enacted by the Tax Reform Act of 1986 have caused many businesses currently taxed under corporate tax rules (known as "C" corporations) to reexamine their tax options.

When operating as an S corporation, individuals are taxed at a top tax rate of 28%. Corporations, on the other hand, are taxed at a maximum rate of 34%. (These figures are subject to change. Consult your tax advisor for the current rates.) Obviously, paying taxes as an S corporation may be more desirable under the new law.

In certain instances, an S corporation may be subject to tax on "built-in gains." Built-in gains are untaxed gains on the assets of a corporation that would have been recognized as taxable if the assets had been sold at fair market value on the day a corporation became an S corporation.

Profits of the corporation are scheduled to be disbursed to the shareholders on the last day of the corporation’s tax year, whether or not the profits are actually distributed. Consequently, if an S corporation’s profits are distributed as dividends, the distribution itself is usually not taxable, so there is not double taxation of distributed profits.

In addition to the income tax advantages, an S corporation status can eliminate accumulated earnings tax problems because all earnings, whether distributed or not, are taxed to the stockholders each year. In addition, S corporation stockholders can apply their deductible personal losses against their pro rata share of the company’s taxable income. They can also deduct their pro rata share of an S corporation’s net operating loss from their personal gross income.

In order to qualify as an S corporation, your business must meet the following requirements:

The corporation must be created under the laws of the U.S. or one of the 50 states.

The corporation must have 35 or fewer stockholders. (A husband and wife will be considered a single stockholder.)

All stockholders must be individuals, decedents’ estates, bankruptcy estates, or certain types of trusts.

An S corporation election should not be made without the advice and assistance of a tax professional, since it is a very complex and technical area of the tax law.

Electing S corporation status for a corporation is usually most favorable in these situations:

Where it is expected that the corporation will experience losses for the initial year or years of doing business and where the shareholders will have income from other sources the business losses can shelter from tax.

Where, because of the low tax brackets of the shareholders, there will be tax savings if the anticipated profits of the business are passed through to them rather than being taxed at corporate tax rates.

Where the nature of the business is such that the corporation does not need to retain a major portion of profits in the business. In this case, all or most of the profits can be distributed as dividends without the double taxation that would occur if no S corporation status were in effect.

Where a business is in danger of incurring an accumulated earnings penalty tax for failure to pay out its profits as dividends.

Possible disadvantages of S corporation status must also be considered. The taxable income of an S corporation is taxed to stockholders even if the income is not actually distributed to them. Consequently, if the cash flow of a business is uneven or uncertain, S corporation status may not be the wisest choice. Finally, certain items that are tax deductible for a C corporation, such as the costs of certain fringe benefits, are not deductible for an S corporation.

Limited Liability Companies

In addition to the three major forms of business structures discussed, many states have adopted a new type of entity called a limited liability company (LLC). An LLC is similar to and taxed as a partnership, and it offers the benefit of limited liability like corporations and S corporations.

In 1988, a Wyoming limited liability company was permitted to be classified as a partnership for federal income tax purposes, despite its limited liability, due to the short-term life of the business. In some states, LLCs are required to terminate in a specified period of years, usually 30 years or less. LLCs offer the corporate benefits of limited liability, while retaining the flexible flow-through tax treatment of a partnership.

As in all other business structures, there are disadvantages to the LLC. Because not all states have adopted a limited liability company law, if you set up an LLC in one state which allows LLCs and you do business in another state, which does not, your LLC may not provide any limited liability protection from creditors in that state. This is a severe risk, and one you won’t face if your business is incorporated.

As your business matures, the initial choice of a business structure, no matter how well it performed in the startup phase, may require adjustment or alteration.

Ask yourself the following questions as an aid in determining what business structure may best suit your business plan.

RESOURCES [ top ]

U.S. Small Business Administration

Delaware Small Business Development Center

Writer: Lynn Phillips

All rights reserved. The text of this publication, or any part thereof, may not be reproduced in any manner whatsoever without written permission from the publisher.

Choosing the right legal status for your business: Complete guide and practical advice

Legal status: definition, usefulness and consequences

The law requires that all companies have a legal status which defines and regulates their mode of operation. This status is essential because it influences many important aspects such as the company's taxation, internal operations and the manager's social regime. In this article we explain what legal status is, what it is for and we clarify the difference between legal form and legal status. We are also studying the different possible options. If you want to create your business, discover our tools to help you in this important process.

What is a company status?

The legal form or status of the company

The legal form of a company, also called "legal status", is a legal framework that establishes the existence of the company and defines its operating rules. It’s like a sort of “identity card” that indicates how the business is structured and how it should be managed. Choosing the right legal form is essential for any business, as it can have implications for its legal liability, tax obligations and ability to raise funds. There are different legal forms, such as limited companies, limited liability companies, sole proprietorships, etc., and each has its own advantages and disadvantages. It is therefore important to fully understand the different options available before making a decision.

The statutes of a company

Legal statutes are an important written document when starting a business. They define the identity of the company and the relationships between the business manager, shareholders and third parties. The statutes also establish the rules for the operation of the company, such as the amount of share capital, the corporate purpose, the address of the partners and the lifespan of the company. It is essential to choose a suitable legal status before starting a commercial activity. To learn more about this topic, see our dedicated article.

Create your business online

More and more entrepreneurs are choosing to build their businesses online, but finding the best platform can be complicated. To help you understand how they work and choose the one that suits you, we tested different options and presented the results in a comparison table. You can compare market leaders and find the one that offers the best value for money, as well as those that are simple, quick and effective. Average prices vary between €329 and €368, with free offers and paid offers starting at €99. The average fee is around €230. Customer reviews are excellent, with a rating of 4,7 out of 5 on Verified Reviews for some. Each platform offers specific advantages, such as complete support for entrepreneurs, the possibility of delegating legal aspects or being supported for your business plan. Promotions are also available. For more information on pricing and details for each platform, click “Discover.”

What are the main legal statuses?

There are two main categories of legal status for businesses: sole proprietorships and companies. Sole proprietorships are activities carried out by a single person, while corporations are forms of business where several people come together to create and manage a business.

The sole proprietorship

The sole proprietorship is a business where the manager and the company are one. Their administrative details, their taxation, their bank accounts and their assets are common. The advantages are that it is a simple, inexpensive business to start and run. However, there are also disadvantages, because it is a risky business since the personal assets of the manager are confused with those of the company. In the event of debt, creditors can seize the manager's assets, with the exception of his main residence.

Our Company

When you create a business, you give birth to a new legal entity separate from you as manager and the shareholders. This entity has its own assets, which means that personal and professional assets are separate. This helps limit the risks for your business. However, the creation and management of a company involves more numerous, complex and costly formalities. Drafting the statutes is a very important technical step, because errors can have serious consequences, even going as far as the loss of the company for the founder. You can choose to create a sole proprietorship or a company, each option having its advantages and disadvantages. It is essential to understand these differences in order to make the best decision for you and your entrepreneurial project. To find out more about choosing legal status, consult our complete file which details the different statuses and explains how to make the right choice.

How companies operate

There are different types of companies which offer more or less freedom to partners to organize the operation of the business. The functioning of a company depends both on the legal rules specific to each type of company (SARL, SAS, EURL, SASU, SA, SCI, etc.) and on the choices made by the shareholders when drafting the statutes. These statutes are then filed with the registration file at the Registry of the Commercial Court. It is possible to modify them in accordance with the conditions provided for in the statutes.

Choosing legal status is often an important step in the business creation process, but it can seem complex and intimidating for founders. Here are some questions that can help you make your choice:

– Do I create my company alone or with other partners? – Do I want to be an employee-manager of my company or self-employed? – Does the creation of my business require a significant investment? – Do I have assets to protect? – Does my activity involve significant risks? – Should my business experience rapid and significant development?

These questions will allow you to eliminate certain options and identify the legal status best suited to your project. It is also important to take into account the psychological aspect, which can play a role in certain sectors of activity. For example, creating a company with substantial share capital can reassure business partners such as customers, suppliers and investors.

It is also crucial to take into consideration the taxation of the company and the manager before making a final choice. Depending on your personal situation and the nature of your project, it may sometimes be more advantageous to opt for IS rather than IRPP, to create a variable capital company or to understand the differences between stocks and shares.

In all cases, it is recommended to seek advice from a professional such as a chartered accountant. Even if his intervention is not necessary, he will be able to guide you in the creation of your business.

Choosing the legal status for a company is an important but complex step. Many personal and professional criteria must be taken into account. This is why it is often recommended to call on an accountant to find the legal status best suited to your project and your situation. Le Blog du Dirigeant, founded by Laurent Dufour, has offered advice and support for business creators and managers since 2010. Download the PDF to find out more about the different legal statuses.

Everything you need to know about Venture Capital funds: the growth engine for startups

Development Strategy: How to Achieve Your Goals and Maximize Your Success

You will surely like

Our sections.

• In the News

The logistical challenges of delivery rounds in urban areas

Boost Your Sales: Affiliate Marketing Fashion & Home for e-retailers

Cutting-edge techniques for personalizing textile products

• The Open University
• Guest user / Sign out
• Study with The Open University

My OpenLearn Profile

Personalise your OpenLearn profile, save your favourite content and get recognition for your learning

About this free course

Become an ou student, download this course, share this free course.

Start this free course now. Just create an account and sign in. Enrol and complete the course for a free statement of participation or digital badge if available.

4 Ownership structures and legal forms

Businesses not only vary in size and industry but also in their ownership. Some are owned by just one person or a small group of people, some are owned by large numbers of shareholders, some are owned by charitable foundations or trusts, and some are even owned by the state. Different ownership structures overlap with different legal forms that a business can take. A business’s legal and ownership structure determines many of its legal responsibilities, including the paperwork that the owners need to complete in order to set up the business, the taxes the business has to pay, how profits from the business are distributed, and the owners’ personal responsibilities if the business makes a loss or goes bankrupt.

It is not necessary to go into great detail on legal forms and ownership structures here but a short overview will help you to appreciate the diversity of businesses. At the broadest level it is possible to distinguish between organisations that are owned and run by private owners, those that are owned and run by the state and those that are run by voluntary organisations. Here we will first look at different types of privately owned businesses.

Legal forms and ownership structures of businesses are different from country to country. In the United Kingdom the majority of businesses (but not all) are sole traders, limited companies or business partnerships (UK Government, n.d.).

• Sole trader – a person who is running a business as an individual. Sole traders can keep all the business’s profits after paying tax on them but they are personally responsible for any losses the business makes (i.e. they would have to cover them out of their private money if necessary), paying the bills incurred by the business (e.g. stock or equipment), and keeping a record of all sales and expenditures. Sole traders can take on employees – the term implies that they own the business on their own, not that they must work there alone.
• Limited company – an organisation set up by its owners to run their business. A limited company is a legal person . Of course, a company is not a person in the sense we commonly understand it. What the term means is that the law regards a limited company as having the same legal standing as a person, i.e. it has legal rights and obligations in itself, which are independent from the rights and obligations of its owners as individuals. For example, a limited company can own property. A limited company’s finances are separate from the finances of its owners. Any profit made after taxes belongs to the company. The company can then share its profits, most commonly among all the owners. Limited companies have ‘members’, i.e. the people who own the shares. A limited company also has ‘directors’. Directors may be share owners but they don’t have to be. Shareholders’ and directors’ responsibilities for the company’s financial liabilities (such as losses or debts) are limited to the value of their shareholdings. This means that they do not have to pay out of their personal income or assets if the company runs into financial difficulties. There are two main types of limited company: private limited companies and public limited companies. The shares of public limited companies (PLCs) are traded in the stock market, where anybody can buy shares in the company if they wish to do so. Private limited companies are not traded in the stock market and other people can only buy shares in them with the approval of the current owners (for example, if they are invited to invest in the company by the current owners).
• Business partnerships – an arrangement where two or more individuals share the ownership of a business. There are two main types of partnership: general partnerships and limited partnerships. In a general partnership all partners are personally responsible for the business, meaning they are liable for any losses or debts with their personal income or wealth if necessary. In a limited partnership partners are not personally liable if the business incurs any losses or debts. Profits from a partnership are shared between the partners and each partner then pays taxes on their share. There are a lot of fine details and several possible permutations in the structure of business partnerships, which are important when setting one up but need not concern us any further here.

There are some other legal ownership structures for businesses in the UK (including some different laws relating to partnerships in Scotland) but the three introduced above are the most common. Similar business ownership structures exist in many other countries although the precise legal implications can differ in important ways.

Legal and ownership structures, business size and industry sector are not entirely independent of each other. For example, most sole traders tend to be small businesses, not least because a single individual rarely has the financial capacity to finance a very large business, nor the desire to be personally liable with all that they own if a large business were to run into financial troubles. Certain industry sectors require large businesses. For example, it is not viable to run a small steel works because the physical and financial investment required are so large. In other cases, industry sector and legal form are closely related. For example, law firms and some other professional service firms with more than one professional working in them in the United Kingdom are legally required to be set up as partnerships and no other ownership or legal structure is permitted.

Blog Companies House

https://companieshouse.blog.gov.uk/2018/07/18/choosing-the-right-business-structure/

Choosing the right business structure

You’ve got a great business idea, you’ve done your market research, you have a business plan and cashflow forecast and you’re ready to start your new business. But, have you considered the business legal structure?

There are other business legal structures, including  community interest companies and co-operatives , offshore companies and franchises. In this blog post, we’ll focus on the most commonly chosen routes.

Sole trader

A sole trader is considered to be ‘self-employed’. This means you must register with HM Revenue & Customs (HMRC) for self-assessment as soon as you start trading.

A sole trader is responsible for running their business and for meeting the legal requirements that come with it. As a sole trader, you can keep your profits after tax; however, you are also personally responsible for any debts of your business. A sole trader can employ staff.

If you’re a sole trader, you need to pay income tax and National Insurance subject to thresholds for profit generated.

You can submit your tax return online or through a paper application.

HMRC has short videos around different areas of tax, and there’s GOV.UK guidance on  setting up as a sole trader .

Owner of the business, entitled to keep all profits but liable for all losses.

• low cost, easy to set-up
• full control retained
• full liability for debt

Partnership

You and your partner(s) personally share responsibility for your business. Partners share the business profits, and each partner pays tax on their share.

A partner does not have to be an actual person. For example, a  limited company  counts as a ‘legal person’ and can also be a partner.

When you set up a business partnership you need to:

• choose a name
• choose a ‘nominated partner’
• register with HMRC

The ‘nominated partner’ is responsible for managing the partnership’s tax returns and record keeping.

A partnership agreement document outlines the liabilities, ownership, how profits of the business are split and what happens if one partner wants to leave. Each partner must register as self-employed and submit a separate tax return.

In a standard partnership all partners are fully responsible for all debts owed by the business.

Find out more about how to set up a business partnership .

Between two or more individuals who share management and profits.

• a partnership is generally easier to form, manage and run
• more potential to raise finance
• full liability, affecting all partners
• partnership disagreements

Limited liability partnership (LLP)

In this legal structure, the number of partners is not limited, but at least 2 have to be ‘designated members’ responsible for filing annual accounts.

Just as with a limited company the LLP model protects its members’ assets, limiting their liability to however much they have invested in the business and any personal guarantees they may have given when raising loans.

As in an ordinary partnership, the members’ share of profit is taxed as income – each member must register with HMRC as self-employed. LLPs must also register at Companies House and there should be a members’ agreement stating what share of the profit each member should receive.

For more information on setting up and running an LLP, read the Companies House guidance .

Some or all partners have limited liabilities, and exhibits elements of partnerships and corporations.

• flexibility: can be incorporated in members’ agreement
• advantages of limited company and partnership combined
• partners must disclose income
• LLP must start to trade within a year of registration – or be struck off

Incorporating a limited liability company (Ltd)

A private company is incorporated and limited by shares. This means that the company has shareholders and the liability of the shareholders to creditors of the company is limited to any money they originally invested. A shareholder's personal assets are protected in the event of company insolvency, but money invested in the company may be lost.

A company limited by guarantee must have at least one director and one guarantor. An individual may assume both positions, or there can be multiple directors and guarantors.

Company directors run the company on behalf of the shareholders. You can be both.

Limited companies must pay an application fee and be incorporated with Companies House. You can register online . You’ll need:

• the company’s name and registered address
• at least one director
• at least one shareholder
• details of the company’s shares
• rules about how the company is run - known as ‘articles of association’

Companies House has further guidance on incorporating a limited liability company .

Private company whose owners are legally responsible for its debts only to the extent of the amount of capital they invested.

• less personal financial exposure
• limited liability protection
• involves set up costs
• annual accounts and financial reports must be placed in public domain

Further information

Contact the Business Support Helpline via the following channels:

• Telephone: 0800 998 1098
• [email protected]

To keep in touch, sign up to  email updates  from this blog, or follow us on  Twitter.

Tags: Business Support Helpline , New business

Sharing and comments

Share this page.

Comment by Dr J.Knezevic posted on 31 July 2018

This is very informative and clear. Thank you.

Comment by Rasheed posted on 31 July 2018

This is very informative and very precise. Thanks.

Comment by C G Renner posted on 31 July 2018

What about an unlimited company?

Comment by Jonathan Moyle posted on 02 August 2018

With an unlimited company its shareholders (or members) have unlimited liability. This means that each member is jointly and severally liable for the debts of the company in the event of its winding-up. So if the company needs more money to settle its debts or liabilities on winding up, it can call on the shareholders to contribute whatever amount is necessary to make up any shortfall.

As always, we'd recommend you seek independent professional advice. You can contact the Business Support Helpline for further information.

Comment by Dave posted on 01 August 2018

Where do I find the current provisions of limitation of liability for an LLP?

Comment by Jonathan Moyle posted on 07 August 2018

Unlike companies, LLPs do not have to state or reveal their limited liability on any documents filed with Companies House.

Section 1 part 4 of the Limited Liability Partnership Act 2000 states that:

“The members of a limited liability partnership have such liability to contribute to its assets in the event of its being wound up as is provided for by virtue of this Act”.

In addition, LLPs have a partnership agreement. You’d normally expect this agreement to contain provisions around the members’ liabilities. These partnership agreements are not made public on the register.

Comment by Dave posted on 08 August 2018

Thanks, Jonathan, but do you know where in the Act I find "such liability to contribute to its assets in the event of its being wound up as is provided for by virtue of this Act”?

Comment by Jonathan Moyle posted on 09 August 2018

Section 1 (4) of the Limited Liability Partnership Act 2000.

http://www.legislation.gov.uk/ukpga/2000/12/section/1

Hope this helps.

Related content and links

About companies house blog.

We use our blog to talk about the work we’re doing, offering tips and advice on starting, running and closing a company. We also share the latest developments on the changes to UK company law.

Find out more about this blog.

Changes to UK company law

The Economic Crime and Corporate Transparency Act has given Companies House the power to play a more significant role in tackling economic crime and supporting economic growth.

Find out how this affects you and your company.

Jobs at Companies House

See Companies House vacancies on Civil Service Jobs .

Visit our careers hub to find tips and advice on applying for jobs at Companies House.

Sign up and manage updates

Follow companies house.

• Companies House on Linkedin
• Companies House on YouTube
• Companies House on Facebook
• Companies House on Twitter

Comments and moderation

Read our guidelines.

U.S. Legal Help in Russian Federation

Get the legal help you need, with our DIY services or attorney advice. Either way, we've got your back.

Attorneys with you, every step of the way

Starting with our DIY services doesn’t mean you have to do it all by yourself. Count on our vetted network of attorneys for guidance—no hourly charges, no office visits.

Helping entrepreneurs turn ideas into businesses over 2 million times.

3.5 million+

estate planning docs

Protecting loved ones by helping customers create 3.5 million+ estate planning documents.

consultations

Providing access to our independent network of attorneys over 650,000 times.

Why choose us

• We do right by you We will refund our fee within the first 60 days if you're unhappy with our services. Learn more
• We've got you covered in all 50 states Have peace of mind knowing our docs have been legally recognized in every state—and you'll never need to leave home to work with a lawyer.
• Flat-rate fees No hourly charges. No surprises. Really.

Legal help for every part of your life

We've made dreams a reality for 2M+ entrepreneurs.

For your business

Whether you need to form a company, apply for licenses and permits, or get a tax ID, we'll set your business up for success.

Start my business

LLC Corporation DBA Get legal help

Every 2 minutes someone created an estate plan document with us to protect their family’s future.*

For you and your family

From wills to powers of attorney, the right estate planning documents can safeguard you and your loved ones—both now, and later.

Start my Estate Plan

Last will Living trust Power of attorney Get legal help

6% of all trademark registration applications in the US were made through us.*

For your intellectual property

Need to trademark your logo, copyright a creative work, or patent an invention? Protect yourself against copycats.

View all options

Trademarks Copyrights Patents

Meet our customers

McCall's Meat and Fish Co.

"We've used [LegalZoom] for quite a few things over the years, and overall it's gone very smoothly. They've been easy to work with and very affordable." Karen Yoo, LLC customer

"Without LegalZoom, I probably would have not felt comfortable, from a time and money and effort standpoint, establishing as many brands as I did. And that would have been a bummer because those are the brands that are really keeping the lights on, and helping our business grow." Derek Rohlffs, trademark customer

"I needed to update my will. I'd heard of LegalZoom. And when I had to update some documents, I looked online at some other companies, but felt comfortable using LegalZoom. The website was very helpful. And having access to a lawyer to make sure that everything was correct made it really doable." Nell C., last will customer

*Based on 2020 data ATTORNEY ADVERTISEMENT: Attorneys advertised on this site are independent attorneys.  See the attorney  in your area who's responsible for this advertisement. LegalZoom.com, Inc. is not an "attorney referral service" or a law firm. The information you provide to LegalZoom is not protected by attorney-client privilege.  Get more information  about this advertisement if you live in Alabama, Missouri, or New York.

English | Español

100% Satisfaction Guarantee

Our refund policy:.

We do right by you—so we'll refund our fee within the first 60 days of purchase if you're unhappy with our services. Call or email us, and we'll process your refund within 5 business days.

What it doesn't cover:

We can't refund third-party processing fees (e.g. paid directly to our service partners or to facilitate fulfilling your order like courier fees) once you make a purchase. And, we can't refund filing fees once we submit your paperwork to the government. Attorney fees paid directly to lawyers (and not through our legal plans) are not covered.

When it applies:

We can't guarantee specific legal outcomes when you use our products or services. For example, a trademark application might be filled out correctly but still get rejected by the government for reasons beyond our control. We can only refund our fee for issues we're directly responsible for. So if you purchase something and later change your mind, we can't issue a refund. For Registered Agent Services customers, you will first need to appoint a new registered agent for your business. If you need help locating the correct government form to change your registered agent with the state, please reach out to our Customer Care team. Updated: August 2, 2021

Garantía de satisfacción total

Nuestra política de reembolsos:.

Hacemos lo correcto por usted; así que le devolveremos nuestro arancel dentro de los primeros 60 días de la compra si no está satisfecho con nuestros servicios. Llámenos o escríbanos y procesaremos su reembolso en el término de 5 días hábiles.

Qué no cubre:

No podemos reembolsar los costos de procesamiento de terceros (por ejemplo, los montos abonados directamente a nuestros socios de servicios o para facilitar el cumplimiento de su pedido, como los gastos de envío) una vez efectuada la compra. Tampoco podemos reembolsar los aranceles por inicio de trámite una vez que hayamos enviado su documentación al gobierno. Los honorarios legales que haya pagado directamente a un abogado (y no a través de nuestros planes legales) no están cubiertos.

Cuándo se aplica:

No podemos garantizar resultados legales específicos cuando usted usa nuestros productos o servicios. Por ejemplo, es posible que una solicitud de marca comercial se realice correctamente y aun así el gobierno la rechace por motivos ajenos a nosotros. Solo podemos reembolsar nuestro arancel por cuestiones de las que seamos directamente responsables. Entonces, si usted compra algo y luego cambia de parecer, no podemos concederle un reembolso. En el caso de clientes con Servicio de Agente Registrado, primero deberá designar un nuevo agente registrado para su empresa. Si necesita ayuda para encontrar el formulario de gobierno correcto y cambiar su agente registrado en el estado, comuníquese con nuestro equipo de Atención al Cliente. Fecha de actualización: 2 de agosto de 2021

LegalZoom Participating Attorneys

6444 US Highway 11 PO Box 800 Springville, AL 35146

401 E. Fireweed Lane Suite 203 Anchorage, AK 99503

275 E. California Blvd. Pasadena, CA 91101

2828 N Central Ave PMB #1510 Phoenix, AZ 85004

6120 Swiss Avenue #140980 Dallas, TX 75214

3900 E. Mexico Ave. Suite 310 Denver, CO 80210

Connecticut

2051 Main Street, 2nd Floor Stratford, CT 06615

211 Church Street SE Leesburg, VA 20175

District of Columbia

1575 S. Beretania St. Suite 206 Honolulu, HI 96826

428 Park Ave Idaho Falls, ID 83402

27 North Wacker Drive No. 203 Chicago, IL 60606

777 Beachway Drive Suite 102 Indianapolis, IN 46224

8712 W. Dodge Rd. Suite 400 Omaha, NE 68114

107 NE 72nd Street Suite D Kansas City, MO 64119

7000 Houston Rd. Suite 17 Florence, KY 41042

2200 Tulane Avenue Suite 304 New Orleans, LA 70119

123 Free Street Suite 200 Portland, ME 04101

Massachusetts

536 Atwells Avenue Suite 200 Providence, RI 02909

2600 W. Big Beaver Road Suite 550 Troy, MI 48084

1821 University Ave. W. Suite 104 Saint Paul, MN 55104

Mississippi

355 S. State St. Jackson, MS 39201

8712 West Dodge Road Suite 400 Omaha, NE 68114

New Hampshire

P.O Box 1778 Manchester, NH 03101

20 Oakland Avenue Jersey City, NJ 07306

1475 Central Avenue Suite 150 Los Alamos, NM 87544

North Carolina

6201 Fairview Road Suite 330 Charlotte, NC 28210

North Dakota

444 Sheyenne Street Suite 102 West Fargo, ND 58078

24400 Chagrin Blvd. #300 Beachwood, OH 44122

6120 Swiss Avenue #140980 Dallas, TX 75231

1631 NE Broadway Box 722 Portland, OR 97232

Pennsylvania

285 East Waterfront Suite 160 Homestead, PA 15120

Rhode Island

South carolina, south dakota.

1821 University Ave. W. Suite 104 St. Paul, MN 55104

130 Old Street London, England, ECV1 9BD

4243 South Holladay Blvd. Holladay, UT 84117

135 College Street Burlington, VT 05402

627-5th St. Suite 203 Mukilteo, WA 98275

West Virginia

27 North Wacker Drive, No. 203 Chicago, IL 60606

428 Park Ave Idaho Falls, ID 83405

Additional State-Specific Attorney Advertising Disclosures

No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers.

The choice of a lawyer is an important decision and should not be based solely upon advertisements.

Prior results do not guarantee a similar outcome.

Legal Structure of a Business

Last updated on 21st April 2023

In this article

According to Government statistics there are 5.9 million private sector businesses in the UK; of these:

• 5.82 million businesses are small businesses (0 to 49 employees).
• 35,600 businesses are medium-sized (50 to 249 employees).
• 7,700 businesses are large (250 or more employees).

Small and medium-sized enterprises (SMEs) account for three fifths of the employment and around half of turnover in the UK private sector. 76% of private sector businesses did not employ anyone aside from the business owner(s).

These ‘no employees’ businesses comprise sole proprietorships and partnerships with only a self-employed owner-manager(s), and companies with one employee, assumed to be an employee-director.

Figures from the Department for Business, Energy and Industrial Strategy state that 16% of all SMEs operate in the construction industry; professional, scientific and technical activities account for 15% of all SMEs; whilst 10% are in the wholesale, retail trade and repair sector.

Private sector businesses are not evenly distributed across the UK. Based on head office location, rather than location of specific branches/sites, London and South East England have considerably more businesses than any other UK country or region of England.

What is the legal structure of a business?

Identifying the right legal UK business structure is a crucial part of a business start-up. When you start a business, the structure you choose will have significant implications on the amount of tax you pay, the degree of your personal liability should the business fail, the amount of administrative work involved and even your ability to raise finance.

As your business structure clearly defines your legal responsibilities, it is essential to put the time into researching which structure is the best fit for you.

The legal business structure is something you need to decide at the outset, although you can change it later on if required. All business structures have advantages and disadvantages, depending on factors such as the size of your business, the nature of your business and your future plans for the business.

What are the main types of legal business structures?

There are three main legal forms of businesses in the private sector:

• Sole proprietorships or sole traders.
• Partnerships.

Sole proprietorships are the most common legal form of a business. At the start of 2019 the UK private sector business population comprised 3.5 million sole proprietorships (59% of the total), 2.0 million actively trading companies (34%) and 405,000 ordinary partnerships (7%).

The Office for National Statistics ( ONS ) figures state that just over three quarters of UK private sector businesses are non-employers, and the majority of these are not registered for either Value Added Tax (VAT) or Pay as you Earn (PAYE) taxes.

Partnerships are probably the simplest way that two or more people can get together to run a business. This way of running a business is very old, and the law governing it dates back to the Partnership Act 1890 , which defines a partnership as “the relation which subsists between persons carrying on a business in common with a view to profit”.

This Act was followed by the lower profile but still used and relevant Limited Partnerships Act of 1907, but it was then almost a century before the next major piece of partnerships legislation arrived in the Limited Liability Partnerships Act of 2000.

HM Customs and Revenue ( HMRC ) records suggest partnerships account for around £150 billion of turnover a year and that around 7% of UK businesses are partnerships.

The majority of UK partnerships are small businesses, with 55% having business turnover under £75,000. However, there is a significant group of slightly larger business partnerships, 41%, that have turnover of between £75,000 and £1 million, and a very small number of major professional service firms operate as partnerships.

There are two types of company business structure that have limited liability:

• Private limited companies (Ltd).
• Public limited companies (PLC).

These businesses exist separately from their owners, who are known as shareholders. Employees are employed by the Ltd or PLC, and assets such as buildings or machinery, are owned by the Ltd or PLC.

This separate legal existence is known as incorporation. Any legal action is taken against the business and not the shareholders. Shareholders are only liable to lose the amount of money they have invested in the business therefore their liability is limited.

In addition to these main business structures there are a growing number of business organisations that are not in business for the money; instead their focus is on social or ethical objectives.

These include charities, co-operatives and social enterprises, which between them provide a wide range of goods and services and reinvest their profits into creating positive social change.

Why does the legal structure matter?

Getting your business structure right is important. One business structure is not necessarily better than another, but each has its own advantages and disadvantages.

Choosing the correct structure is an important decision as it will affect the way that your business is organised, your and your business’s legal obligations and tax position, filing requirements and your personal liability to third parties.

When thinking about which business structure will work for you, it may be helpful to consider the following:

• Who owns the business?
• Who do you want to manage the business?
• What is the tax position of each structure?
• How risk averse are you?
• Is personal liability a potential issue?
• What are the costs involved in setting up and running the structure?
• What formalities do you want to deal with?
• Is a structure with increased formalities worthwhile at this point in your business’s lifecycle?
• Are you happy for certain information to be made public?
• Are exit strategies important to you, for example, are you likely to want to sell your business in the future?

What is the legal business structure of a sole trader?

A simple and agile business structure, but it can incur a lot of personal risk. Sole traders are individuals who run a business on their own with no separate legal personality or limitation of liability and no legal formalities or administration or filing requirements.

There is no separation between the management and ownership of the business, the sole trader owns all the assets personally and has full control over the business. Sole traders often rely on their own savings and perhaps secured business loans to start their business.

Costs to set up as a sole trader can be fairly minimal depending upon the type of business you are establishing; however, this business structure exposes you to more personal risk than other business structures, so it may not be suitable for a high-cost start-up.

A sole trader is considered to be ‘ self-employed ’. This means you must register with HM Revenue and Customs ( HMRC ) for self-assessment as soon as you start trading as a sole trader . You will pay income tax, make National Insurance (NI) contributions through self-assessment and will be individually responsible for paying these.

A sole trader gets the benefit of the personal tax-free threshold; however, you will be taxed at basic and higher tax rates for the profit you generate. As your profit increases, it may cease to be beneficial to remain as a sole trader.

A sole trader runs the business as an individual in their own name, although many choose to use a trading name for the business.

However, even with a trading name the business is not a separate legal entity. Sole traders receive 100% of any profit but also bear 100% of any loss and are responsible for all debts and liabilities of the business.

This means that you are personally responsible for any debts incurred by the business. This is sometimes referred to as unlimited liability. As a sole trader, you have personal liability for any business debts and any contractual obligations. An example of this might be leasing premises for a business on a two-year lease, the business fails within the first year, however, the sole trader is liable for the ongoing costs for the length of the lease.

If the sole trader defaults then the creditors can ask the courts for payment or to seize and sell personal assets to pay the money owed. These assets can include personal property, cars, in fact anything of value.

There is minimal red tape for a sole trader, there is no need to register the business with Companies House , there are no incorporation or ongoing filing requirements and your business accounts can remain private. A sole trader, however, may wish to register for VAT and some trades may require other regulatory obligations to be fulfilled. You can set your own policies and working practices and employ staff within UK employment law.

Because you can make decisions alone, it can be quick and simple to make changes to the business to adapt to changing circumstances, for example, you can change your pricing structure or change the products or services that you offer, adding new products or services or removing those you don’t have faith in.

This ability to make swift decisions and implement them quickly can be a key advantage for a sole trader in a competitive, quickly changing market. As well as being the sole decision maker, a sole trader will generally be close to their customers and can therefore be sensitive to the needs of their clients, attuned to their requirements and able to react quickly and decisively to them. A sole trader can build up trust and confidence based on personal service.

However, there are some organisations that can’t or won’t do business with sole traders; many businesses will want the extra reassurance that comes with being incorporated as a limited liability company.

As a rule, banks and other investors are wary of dealing with sole traders, again because it is a risky business structure, so raising finance to expand may prove difficult.

Winding down and closing your business as a sole trader is a relatively simple affair. A sole trader business can be wound down by settling any liabilities, collecting monies due, keeping or selling any physical or proprietary assets, distributing any residual monies to the owner and finally notifying HMRC.

What is the legal business structure of a partnership?

Partnerships are often found in professions such as solicitors, architects, accountants and doctors, but can be found in any type of business activity. They are a streamlined set-up for business partners who know and trust each other well.

Partnerships fall into three categories:

• Ordinary or traditional partnerships.
• Limited partnerships.
• Limited liability partnerships (LLPs).

Before setting up any partnership there are a number of important things to work out before you start your business.

These include:

• The percentage ownership of each partner.
• Who contributes what into the partnership, and whether those assets belong to the partnership or not if the business is later sold or wound up.
• How profits and losses will be allocated.
• How decisions will be made at meetings, and possibly whether any partner has a casting vote or more say on a particular matter.
• The principal duties of each partner.
• The limits of authority of each partner who makes decisions by themselves, for example you might agree that no partner can borrow or make an order for more than £1000 without the agreement of the others.
• The procedure for admitting a new partner.
• The procedure for removing a partner from the partnership, or what happens when a partner decides to leave.

Ordinary or traditional partnerships

An ordinary or traditional partnership does not have any legal existence distinct from the individual partners. If a partner resigns, goes bankrupt or passes away, the partnership will need to be dissolved; however, the business can continue.

Using this type of partnership is a reasonably easy and fast method for two parties or a group of people to set up, own and manage a business. There is no upper limit on the number of partners permitted to join the partnership.

An ordinary partnership is similar to the sole trader structure, except that there are at least two business owners. Each partner registers as self-employed and submits a separate tax return; the tax and NI obligations are similar to those of a sole trader.

Ordinary partnerships are governed by the Partnership Act 1890 and many partnerships will have a partnership agreement. This sets out the various rights and responsibilities of individual partners, including stating any specified split of profits, decision-making processes and the procedure to take in case a partner leaves the partnership.

A mechanism for dealing with disagreements between the partners or deadlock situations should also be covered in the partnership agreement.

An ordinary partnership set-up is simple and very flexible, and there is no requirement to publish company accounts. An ordinary partnership has no incorporation or ongoing filing requirements, although it may be registered for VAT.

They are ‘transparent’ for tax purposes, and tax liability falls on the partners who are taxed on their share of the profits or losses of the ordinary partnership. Any profits will be shared between the partners and all of the partners are personally responsible for any losses, debts and liabilities of the business.

As a result, a third party could reclaim the whole of any debt from one single partner, in other words creditors may claim a partner’s individual assets to pay back debts, including debts built up by another partner. Should a partner leave the partnership, each of the partners left within the partnership may be jointly liable for the total sum of any debts incurred by the partnership as a whole.

There are a number of advantages of the ordinary partnership structure over that of a sole trader. These include a wider range of skills, greater availability of capital, shared decision-making, and pressure is likely to be reduced with different partners having separate key roles. However, capital can still be limited, with the same problems of raising external capital that a sole trader has.

Also, the more partners there are, the more money there may be available from their combined resources to invest into the business, which can help to fuel growth, and together their borrowing capacity is also likely to be greater.

In an ordinary partnership, the partners both own and control the business. As long as the partners can agree how to operate and drive forward the partnership, they are free to pursue that without interference from any shareholders. This can make a partnership business potentially more flexible, with the ability to adapt more quickly to changing circumstances.

Unless a formal partnership agreement has been drawn up, an ordinary partnership business can easily be dissolved at any time: this gives each partner the freedom to choose to leave if they wish to.

Partnership agreements need to be legally dissolved. If a partnership agreement has to be dissolved on the death of a partner this can cause complications in re-establishing the partnership.

Limited partnerships

A limited partnership is registered in accordance with the Limited Partnerships Act 1907. An English limited partnership must be formed between two or more persons and must carry on a business in common with a view of making profit.

Unlike an ordinary partnership, a limited partnership has two categories of partner:

• One or more general partners who manage the business of the partnership and are liable for all debts and obligations of the firm.
• One or more limited partners who do not participate in the management of the partnership and who have limited liability for the debts and obligations to third parties beyond the amounts they have contributed.

Limited partnerships must be registered at the Registrar of Companies, Companies House . Until registered, both types of partners are equally responsible for any debts and obligations incurred. It is usual to register immediately after the partnership agreement has been signed.

Most limited partnerships are limited to a maximum of 20 partners and each partner must separately register for self-assessment with HMRC. However, under section 717 of the Companies Act 1985 there are a number of exceptions to this rule; they relate almost exclusively to professional partnerships.

Limited liability partnerships

Limited liability partnerships (LLPs) are a popular choice for large partnerships providing professional services, for example, firms of accountants, architects or solicitors. A limited liability partnership does not have shares or shareholders, but instead has members.

An LLP is a body corporate with a legal personality separate from its members, primarily governed by the Limited Liability Partnership Act 2000. LLPs must also comply with various regulations, such as the Limited Liability Partnership Regulations 2001 and the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009. These regulations modify and apply parts of the Insolvency Act 1986 and the Companies Act 2006 to be relevant for LLPs.

As an LLP, you must complete the registration process with Companies House. You should also consider creating an LLP agreement with the other partners. This document sets out how the business will be run, the rules for sharing power and the rules for sharing profits. LLPs must nominate a minimum of two designated members who will take on legal responsibilities such as filing the annual accounts. You will be required to file accounts and send an annual return to Companies House.

Accounts will be made public by Companies House, which means anyone can view them. There is substantial paperwork to complete, therefore, employing an administrator to manage this may be appropriate.

Each partner within the LLP must register as self-employed and file an individual tax return. The LLP itself will also file a partnership tax return, showing income and expenditure as well as detailing how profits and losses have been allocated between the members.

If the LLP employs people, it will need to operate a Pay as you Earn (PAYE) payroll scheme, make regular returns and pay income tax and NI that are deducted from the pay of employees to HMRC. If the LLP needs to register for VAT or chooses to register voluntarily, it will also need to submit regular VAT returns and make payments of VAT to HMRC.

The key advantage that an LLP provides over a traditional partnership, is that of limited liability of the members. The liability of each member is limited to the value of their investment in the partnership. That means the members’ personal assets won’t be at risk, unless they are guilty of wrongdoing or have provided personal guarantees.

What is the legal business structure of a private company?

There are currently over 3.5 million limited companies incorporated in the UK. With over two million registered at Companies House, private companies limited by shares are the most frequently used type of company in the UK.

They are more commonly referred to as private limited companies and must have the word ‘Limited’ or the abbreviated suffix ‘Ltd.’ at the end of their name. A limited company has one or more directors, has its own bank account(s), pays its own kind of tax, corporation tax, can be bought and sold in the form of shares, and must be registered at Companies House.

The Companies Act 2006, fully effective from 1 October 2009, made a number of changes making it easier to run a limited company. It is very easy to start a limited company and it can all be done online in just a few hours. However, if you choose not to use ‘limited’ in your company name you must register by post.

The company will usually be registered within 24 hours of receipt of your application, if you do it online; postal registrations can take up to 10 days. It costs £12 to register your company online, and postal registrations normally cost £40, though you can pay £100 for a same-day postal registration if you wish.

The cost of incorporating, that is the name given to the creation of the new limited company, is an allowable expense against corporation tax. When you incorporate a business at Companies House and it is entered onto the register, it becomes separate from the person who owns or manages it – it becomes a legal entity in its own right.

Once you have registered your company, a ten-digit Unique Taxpayer Reference (UTR) will be posted to your company address within a few days. You will need this, so keep it safe. You will also receive a ‘certificate of incorporation’, confirming that the company legally exists. This document also includes the company number and date of formation.

You can set up a limited company in which you are the sole employee and only director. Your company must have at least one director and at least one shareholder, that is you, but it can have several directors and/or shareholders.

Directors collectively agree decisions for the company, must follow its rules and have ultimate responsibility for filing the accounts and ensuring the company pays its corporation tax. Shareholders typically vote on decisions at shareholder meetings, with one share equalling one vote, so majority shareholders have more influence.

A shareholder with more than 25% of the shares is a ‘person of significant control’ (PSC).

As a director you will have some legal responsibilities, including managing accounts and informing other shareholders if you stand to benefit personally from any company transactions.

At the end of your financial year you must report key information to HMRC and Companies House. This ensures that the company pays the tax it owes, and also provides accurate information about the company to its shareholders, investors, creditors and the general public.

You will need to file a company tax return annually, by the deadline given to you by HMRC. You will also need to register for PAYE if the company pays any salaries, including your own as director. Your company may also need to register for VAT, or you may wish to do this even if you don’t have to.

There are two main ways in which you as director can take an income from your company. You can take a salary, or you can pay yourself dividends out of company profits.

Most directors choose a combination of the two, as this can be the most tax efficient. The advantage of a salary, however, is that it entitles you to various other benefits such as the state pension and maternity/paternity benefits and doesn’t require the company to be in profit to pay you, although it is taxed at a higher rate.

One of the main reasons why this particular type of company set-up is so popular is that the amount for which shareholders are liable in the event that the company is wound up is limited to the reserves of the company.

Most contractors choose to operate as companies, as it reduces the risk that their clients will have to treat them as employees for tax and legal purposes. It also protects contractors from heavy personal losses if they are sued by clients.

Forming a company also opens up more ways to fund your business through private equity funding; that is, selling shares in your business.

The formation of a private limited company can suggest that the business has permanence and is committed to effective and responsible management.

It gives both suppliers and customers a sense of confidence and many companies, particularly larger businesses, will not deal with an entity that is not a limited company. Incorporating a business can therefore open up new business opportunities that would not otherwise be available.

What is the legal business structure of a public limited company?

A public limited company (PLC) is a limited liability company, formed in a similar way to a private limited company under the Companies Act 2006, that has chosen to raise capital by offering its shares to the general public.

They both have constitutional documents under the Act, that is, a memorandum and articles of association that have to be filed at Companies House and govern the way the company is run. The shareholders have limited liability for the debts of the business.

There are slightly different requirements for a public company than a private company, for example, a public company must have at least two directors and a company secretary, whereas a private limited company is only required to have one natural director and there is no requirement to have a company secretary.

UK company law says that a PLC must have the PLC designation after the company name and minimum share capital of £50,000.

There are also more complex accounting and reporting requirements for a PLC. If a PLC is listed on a stock exchange, for example, but not limited to:

• the London Stock Exchange ;
• the New York Stock Exchange ( NYSE );
• NASDAQ , an American stock exchange based in New York City;
• the Tokyo Stock Exchange, abbreviated as Tosho or TSE/TYO ; or
• the Bombay Stock Exchange ( BSE ).

There will be further reporting, corporate governance and disclosure requirements placed on it, so that potential buyers can understand the risks of their investment.

The biggest advantage of forming a PLC is that it grants the ability to raise capital by issuing public shares. A listing on a public stock exchange attracts interest from hedge funds, mutual funds and professional traders as well as individual investors. That tends to lead to increased access to capital for investment in the company than a private limited company can accrue.

Another advantage is that a PLC can offer investors a certain amount of liquidity in that investors can sell their shares fairly quickly, particularly if the shares are trading on a stock exchange.

If a PLC is planning to expand its business, it can issue shares to the public to fund activities such as:

• Buying property.
• Paying off its debts.
• Starting a new project.
• Engaging in research and development (R&D).
• Creating a new line of business.

However, PLCs are vulnerable to hostile takeovers, that is a takeover of one company called the target company by another called the acquirer. The takeover is accomplished without the agreement of the target company’s management.

Instead, the acquirer approaches the company’s shareholders directly or fights to replace the management by acquiring shares to get the takeover approved. PLCs are also liable to instability in share valuation as the company is at the mercy of the financial markets, meaning that the value of the company can go up or down.

How should you choose?

Choosing the right legal structure is a necessary part of running a business, whether you are just starting out or your business is growing.

Choosing the right legal structure for your business starts with analysing your business goals. By defining your goals, you can pick the legal structure that best fits your business.

As your business grows, you can change your legal structure to meet your business’s new needs.

Some of the questions to ask yourself might be, am I looking for a business structure that:

• Is easy to set up?
• Has low costs?
• Is easy to run?
• Has flexibility?
• Provides privacy?
• Is tax efficient?
• Provides personal protection?
• Has scalability?
• Is suitable for the future?
• Is easy to exit?

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. You may want to seek expert advice before settling on a particular legal business structure.

Changing to a different legal business structure

Although it is important to get your business structure right from the start, remember that things may change in the future and what is right for you as you are starting out may not be the structure that the mature version of your business needs.

Many famous companies started as sole proprietorships and eventually grew into multimillion-pound businesses, for example, Ingvar Kamprad owned IKEA as sole proprietor building a global furniture business from a single general goods store in rural Sweden.

Many small businesses and self-employed people start out as sole traders because it is the easiest legal structure to set up, especially when you are keen to get going with your new venture or you want to test the market. As the business grows, some small business owners make the change from sole traders to limited companies.

Here are some key steps you will need to take if you are changing your business from a sole trader to a limited company:

• Decide whether you will be the sole director or whether you want to bring in others.
• Tell HMRC your legal structure has changed; this is very important because changing legal structure affects the amount of tax you need to pay.
• Choose a name for your limited company.
• Register your business with Companies House – to do this you will need to create your memorandum and articles of association.
• Set up a new business bank account for your limited company.
• Tell your insurer your legal structure has changed.

It is important to take professional advice about the best option for you and your business if you are considering changing the legal business status.

Why change your business structure?

As businesses grow, evolve and change, it may make sense to change the legal structure of your business. In the vast majority of cases, small businesses change from a simple business structure such as sole proprietor or ordinary partnership to a more complex one such as a limited company or limited liability partnership.

The main reasons small businesses consider changing their business structure are:

• Increasing the number of employees – Employees come with liability and business owners want the protection offered by a limited company or LLP, rather than being personally liable.
• Protection from liability – In addition to the liability that comes with employees, businesses may be liable for injuries to customers, for loans, business debts and for other issues. By switching to a more formal business structure, business owners can protect their personal assets from that liability.
• Allowing outside investment or finance – Anyone who wants to buy a portion of a business as a shareholder, become a partner or lend large sums of money is going to require a formal business structure to protect their investment. A formal business structure such as a limited company or LLP involves setting out clear rights and responsibilities at the outset.
• Expanding client base – Many larger organisations will only do business with limited companies or LLPs; this is usually due to the level of risk involved in the contracts they award.

In conclusion

It is not always easy to decide which legal business structure to choose, as you need to consider your business’s financial needs, risk and ability to grow. Give it careful analysis in the early stages of forming your business, although you can always change the legal business structure if you need to.

Employment Law

Study online and gain a full CPD certificate posted out to you the very next working day.

Take a look at this course

About the author

Evie has worked at CPD Online College since August 2021. She is currently doing an apprenticeship in Level 3 Business Administration. Evie's main roles are to upload blog articles and courses to the website. Outside of work, Evie loves horse riding and spending time with her family.

Similar posts

The Role of Regular Health Check-ups in Cardiovascular Prevention

The Future of Anti-Bribery Legislation: Global Trends

The Role of Therapy and Medication in Treating Anxiety

Shift Work Sleep Disorder

Celebrating our clients and partners.

business structure

How to structure different business types

There are many reasons people go into business. For some, it’s an opportunity to fulfil a lifelong dream; pursue a passion; try out a new idea. For others it might be a side hustle – perhaps earning from a hobby or to help top up the main income or it’s set up to help create and maintain a certain type of lifestyle. For others still it could be a means to give back, whether supporting others less advantaged, protecting the environment or providing opportunities to communities.

Whatever your reason for going into business, it’s important to think through how your business is registered and legally structured as this will affect a number of things for you moving forwards including: –

• Where the financial liability sits if the business fails
• Where the legal liability sits for the business
• How you pay taxes and the level you pay
• Your financial reporting responsibilities
• What grants and other funding you might be eligible for

It can be a minefield. But the good news is that you don’t need a degree to work out which business structure is right for you. And even better, whilst we recommend you take advice from an accountant before jumping in feet first, you can set everything up yourself with relative ease.

To help you decide which is the best structure for your business, we’ve listed the most common forms of business registration below.

Registering your business

Unless you are a charity, social enterprises or community interest group, most businesses register as a sole trader, limited company or partnership. The following advice is taken from www.gov.uk/set-up-business

SOLE TRADER

What is a sole trader.

You run your own business as an individual and are self-employed

You can trade under your own name, or you can choose another name for your business. You don’t need to register your name. Sole trader names must not:

• Include ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’
• Be offensive
• Be the same as an existing trademark

You are personally liable for any losses with the business.

How to set up as a sole trader

You will need to register yourself as a sole trader with HMRC here

What are the legal responsibilities of a sole trader?

• You must include your name and business name (if you have one) on official paperwork, for example invoices and letters
• You will need to keep records of your business’s sales and expenses
• Send a Self-Assessment tax return every year
• Pay Income Tax on your profits and Class 2 and Class 4 National Insurance – use this calculator to help you budget Estimate your Income Tax for the current year – GOV.UK ( www.gov.uk )
• You must register for VAT if your turnover is over £85,000. You can register voluntarily if it suits your business, for example if you sell to other VAT-registered businesses and want to reclaim the VAT.

Your earnings as a sole trader

• You don’t receive a salary or a wage – you simply ‘draw’ money from the business.
• You’re taxed on the income that your business receives minus the allowable business expenses incurred.

Many prefer the option of trading as a Sole Trader as its simpler and cheaper. However this doesn’t mean that you shouldn’t follow best business practice and it is recommended that you:-

• Set up a separate bank account for all your income and expenses. 
• Set up a spreadsheet to record your income and expenditure each month (a template is attached)
• Retain all your receipts in date order

LIMITED COMPANY

What is a limited company.

The business finances are separate from your personal finances. This means the company:

• Is legally separate from the people who run it
• Has separate finances from your personal ones
• Can keep any profits it makes after paying corporation tax

How to set it up a limited company

• You will need to find a suitable company name that has not been used (or is not too similar to one) elsewhere. You can check this here.
• You will need a ‘registered address’ where official paperwork will be sent. This will appear on the public register and doesn’t have to be your trading address. Some accountants offer this service or you can purchase an annual address site from private companies.
• You will need to nominate at least one Director and allocate shares.
• You will need to check the Standard Industry Classification Code (SIC) which you can find here.  
• You will need to agree and create the written rules of the company. There are standard Memorandum of Association templates available here .
• You will need to register your company which you can do online here.
• It is limited by shares
• It uses standard articles of association ‘model articles’
• It costs £12 and can be paid by debit or credit card or PayPal account

Legal responsibilities of a limited company

• You must compile your financial records into a set of statutory accounts each year and file these with HMRC. Many people use an accountant for this, but there is financial reporting software (for example XERO, FreeAgent, Quick Books) that will run off the reports you will need for this at the touch of a button. Alternatively, you may choose to have an accountant prepare these for you.
• You must file a company tax return – known as a Corporation Tax Return with HMRC each year and you will be required to pay tax on the profit the business makes
• You must report and changes – for example new or departing directors; change of registered or trading address.
• You must follow the Articles of Association that you will have agreed to when you set the company up.

Your earnings as a limited company

There are a number of ways that money can be legally taken out of a business. How you decide to do this does have implications on other support and benefits you may be entitled to, as many people discovered during the pandemic.

Salary and expenses

If you want to receive a salary then you will need to register your business as an employer and register yourself / your employees under the PAYE scheme. This means that you will draw a regular salary and pay income tax and national insurance contributions in the same way that you would as an employee to someone else.

You are eligible to claim back recognised expenses – for example petrol

Benefits in Kind

If you or an employee makes personal use of something that belongs to the company, this must be reported as a benefit and pay any tax due

A dividend is a payment that can be made to a shareholder if the business is making a profit. Dividend payments must be recorded (date, name of company, name of shareholder and amount of dividend). Dividends need to be reported and are taxable to the shareholder if over £2,000

Directors Loan

If you take out of a company more than you put in, this is called a Directors Loan. These must be recorded and tax may be payable dependant on the situation of the loan account at year end.

Although there are more legal liabilities and costs involved in running a private limited company, you have the benefit of not being personally liable for any business debts. There are pro’s and con’s to the different forms of payment and it is recommended you speak with an accountant before deciding the best route for you.

PARTNERSHIPS

What is a partnership.

In a partnership, you and your partner (or partners) personally share responsibility for your business.

This includes:

• any losses your business makes
• bills for things you buy for your business, like stock or equipment

Partners share the business’s profits, and each partner pays tax on their share. A partner doesn’t have to be an actual person. For example, a limited company counts as a ‘legal person’ and can also be a partner.

You can set up a limited partnership to run your business. You must have at least one ‘general partner’ and one ‘limited partner’. General and limited partners have different responsibilities and levels of liability for any debts the business can’t pay. All partners pay tax on their share of the profits.

How to set up a partnership

• You will need a ‘registered address’ where official paperwork will be sent. This will appear on the public register and must be your main place of business.
• You will need to choose a ‘nominated’ partner. This is the person responsible for managing the tax returns and keeping the business records.
• Limited partners contribute a sum to the business on set up; are only liable for debts up to the contributed amount; don’t run the business; are not allowed to withdraw their initial contribution
• General partners are liable for all business debts; are responsible for running the business and can act on behalf of the business; are responsible for winding the business up
• Each partner will need to register for self assessment. 
• You will also need to register the business for self assessment .
• You will also need to register your limited partnership.

Legal responsibilities of a partnership

• You must report and changes – for example new or departing partners; change of address or business activities
• The General Partner will need to keep records of your business’s sales and expenses
• Both partners will need to send a Self-Assessment tax return every year. The General Partner will also need to submit a business self-assessment return
• Each partner will Pay Income Tax on your profits and Class 2 and Class 4 National Insurance – use this calculator to help you budget Estimate your Income Tax for the current year – GOV.UK (www.gov.uk)
• The General Partner must register for VAT if your turnover is over £85,000. You can register voluntarily if it suits your business, for example if you sell to other VAT-registered businesses and want to reclaim the VAT.

Your earnings from a partnership

Generally speaking, partners will agree drawings from the profits made in the business. These are recorded and reported in each individual’s self assessment return each year.

A partnership is the most straightforward way for 2 or more people to run a business together. You share responsibility for your business’s debts. You also have accounting responsibilities. However before you enter into any partnership, we recommend that you give careful consideration to your relationship with the partner(s) involved; the balance of skills and attributes; each partner’s values and goals. As the old adage goes ‘be careful when mixing business with pleasure.’

Related Resources

An in-depth look at: records & reporting and VAT

HOW DO YOU decide on a legal status for your business?

Bitesize masterclasses

Masterclass playlist, tourism bitesize masterclass - business legal entity 1, tourism bitesize masterclass - business legal entity 2.

In this first of two masterclass videos on business legal entity, Guy explains the different types of legal entities for a business and the advantages and considerations for each. By the end of this video you will have a clear idea which type of legal structure is most advantageous for you and your business.

In this second of two masterclass videos on business legal entity, Guy discusses VAT, the different schemes available and the advantages and considerations of each. By the end of this video you will be able to make an informed decision about becoming VAT registered (if you are not legally obliged to be) and what the different thresholds might mean to your business.

• Leasing Land and Property

Careers and HR

• Training Courses
• Legislation, Licensing & Regulations

Manage consent

© Lincolnshire County Council 2023

• Privacy Notices
• Cookie Information
• Terms & Conditions

Lincolnshire County Council, County Offices, Newland, Lincoln, LN1 1YL

Privacy overview.

01905 673600

Legal Status of your business

The legal status of your business can depend on the type and scale of business that you are going to set up, you will also need to consider the tax implications.

If your enterprise has social aims you may also consider setting up a social enterprise or community interest company.

• Editorial Standards
• Reprints & Permissions

Massachusetts takes Uber, Lyft to trial over whether drivers are employees

• Medium Text

Sign up here.

Reporting by Nate Raymond in Boston; Editing by Josie Kao, Alexia Garamfalvi and Bill Berkrot

Our Standards: The Thomson Reuters Trust Principles. New Tab , opens new tab

Thomson Reuters

Nate Raymond reports on the federal judiciary and litigation. He can be reached at [email protected].

Business Chevron

Nestle India shareholders vote against increase in royalty to Swiss parent

Shareholders in Nestle India have rejected a company proposal to increase royalty payments to its Swiss parent Nestle , the company said late on Friday.

Money blog: How to sell your home without an estate agent - and save thousands

How easy is it to sell your home without an estate agent - and how much could it save you? We spoke to industry experts to find out. Read this and our other Weekend Money content below, and let us know your thoughts. We'll be back with live updates on Monday.

Saturday 18 May 2024 09:05, UK

Weekend Money

• How to sell your home without an estate agent
• Tourist taxes to watch out for in popular holiday destinations
• Childcare vouchers, hard work and new skyscrapers: What readers have said this week
• Three things you need to know from Money this week

Best of the week

• The rise of Michelin starred 'fast food'
• How much do buskers make?
• Basically... What is PIP - and what could government changes mean?
• How to make sure your car passes its MOT
• Money Problem : My workplace wants to pay us by the minute - what can I do?
• Best of the Money blog - an archive

Ask a question or make a comment

By Ollie Cooper , Money team

Estate agent fees are one of the big expenses in selling a house - but rule changes and the rise of private sale websites have made it more common for people to go it alone.

But how easy is it - and what do you need to know? We spoke to industry experts to find out.

Firstly, what do estate agents do for their money?

An estate agent will typically charge in the range of 1%-3.5% of the sale price. 

That means for the average house price (£284,691 from December) you could pay anywhere from £2,846 to £9,964 in commission fees.

"When you use an estate agent, their fee includes taking professional photographs, advertising your home, conducting property viewings, and negotiating a price on your behalf," says Jack Smithson  from the home ownership site  Better.co.uk .

In addition, an estate agent will compile comprehensive details of your house, including room sizes and descriptions of fixtures and fittings. 

"They will also provide a concise write-up about the local area, highlighting amenities, schools, and transportation links," Jack adds. 

And they'll conduct checks on buyers for you (more on this later).

It sounds like a lot, but...

"Selling your home yourself can be a manageable process with a few key steps," Jack says.

Preparation 

You should begin by thoroughly researching house prices in your area, using websites like Rightmove and Zoopla - but seek free valuations from local estate agents to ensure you have a realistic asking price in mind.

Next, you want to take high-quality photos of your house.

Jack advises using tutorials on YouTube to learn new shooting and editing techniques that can take you to the next level.

You then want to write down what makes your home unique.

"While browsing other listings for inspiration, take it a step further by emphasising what you love about living in your home and the surrounding area," Jack suggests.

"Whether it's the refreshing scent of the coastline or the tranquil sounds of village life, incorporating these details can help potential buyers visualise living there," he advises. 

Like using YouTube for photography tips, you can use free tools such as ChatGPT and Grammarly if you need help with your writing, Jack says. 

Advertising

This is probably the biggest perk of going through an established estate agent - your home is much more likely to be viewed because they will have an established audience and a market. But it's very possible to do it alone. 

"When it comes to advertising your home, explore a variety of avenues including local newspapers and social media," Jack says.

"Consider using websites like Strike, which allow individuals to list their properties for free on platforms like Rightmove," he suggests.

Viewings 

Once you've secured some viewings, you've got the opportunity to make it a bit more personal than estate agents ever could - a real advantage. 

"Explain the reasons behind your decision to purchase the property, highlight its unique features, and share the aspects of your neighbourhood that make it a desirable place to live," Jack says. 

The small things matter when showing people round - so try to take an objective look around before you bring anyone in.

Do the things you'd do normally - make sure it smells nice and it's clean and tidy.

"Lastly, it's worth knowing that you must legally provide potential buyers with a free Energy Performance Certificate (EPC)."

The sale itself

Perhaps the most daunting aspect is the physical exchange of contracts and money. 

An estate agent would typically oversee the process of the initial offer acceptance to the transfer of keys to the new owner.

However, if you go it alone, you'll need to become the central point of contact - bridging the gap between your solicitor or conveyancer and the buyer and their legal representative.

"Once you've accepted an offer on your property, your first task is to draft what's called a memorandum of sale," Jack says.  

This document is a written confirmation of your acceptance of the offer and details the agreed price along with any specific conditions you've both agreed to.

"It's then recommended to engage the services of a solicitor or conveyancer to ensure all legal obligations are met," Jack says (of course, you'll need to do this even if you have an estate agent).

The cost of hiring one typically ranges from a few hundred to over £1,000, depending on factors such as fixed fees, hourly rates, the complexity of the sale and additional costs like property searches or land registry fees.

"In the absence of an estate agent, you'll be responsible for keeping your buyer informed about the progress of the sale. This involves regular updates on the status of legal procedures and any relevant developments," Jack says, before adding that this can actually be a good thing.

"By taking on these responsibilities independently, you'll have greater control over the sale process. However, it will require you to be exceptionally organised, and you'll need to be very good at communicating too."  

Any risks to be aware of?

Rita Patel, legal director at law firm  Browne Jacobson , tells us the biggest risk for people selling their properties without an estate agent is the lack of a vetting and verification process of the potential buyer.

Estate agents will verify the buyer's identity and check the buyer's proof and source of funds - without this, there's no way to assess the buyer is legitimate and can afford to buy.

"Whilst this process is something lawyers can help with, this is often at an additional cost, and you'll need to start from square one if there is an issue with a potential buyer's identification and/or financial eligibility," Rita says. 

More generally, selling without an agent can extend the time it takes to sell. 

"Zoopla suggests this timeframe is normally around 17-34 weeks, but with no one on hand to consistently promote and drive the property sale at all stages, going solo drags this process out," Rita says. 

"Agents can also help mediate any potential breakdowns in communication between the buyer and seller - reducing the likelihood of having to go back to market and start again."

The advantages

Laura Owen-Brown, a PR manager from Gloucestershire, tells us she is set to sell her house without an estate agent in the near future.

"My disappointment with estate agents stems from their lack of familiarity with the properties they attempted to sell me when I was buying my current house," she says. 

"They couldn't tell me about the details that truly matter, like the optimal times for sunlight in the garden, how much council tax I'd pay, what the roof was made of, the places I could walk my dog off lead or the impact of post-football match traffic on Sundays.

"These types of details can shape the experience of living in a house for years and are just as important as the square footage, EPC rating or how many bedrooms a property has," she adds. 

She says the current "transactional" approach to selling houses feels "impersonal and outdated" to her. 

"Yes, I'll have to handle more admin, but the savings in both money and time will make it worthwhile. Liaising with buyers and solicitors directly without a third party slowing everything down will mean I can be in control and have transparency throughout the process, especially during negotiations," she says.

All in all...

As Laura says, it's very much a case of whether you can stomach the admin and are happy to take the risks on background financial checks. 

If you are aware of all the above and willing to take on the organisational burden, you could save yourself a serious chunk of cash. 

As we've been reporting in the Money blog over the last few months, an increasing number of cities are either imposing or increasing the cost of tourist taxes on visitors. 

Many say they are preventing damages from overtourism, as well as funding local infrastructure and businesses. 

Here are the latest tourist fees for the most popular spots in Europe...

Tourists visiting Venice for the day will have to pay a €5 entry fee to enter the city between the hours of 8.30am and 4pm.

Meanwhile, those staying overnight in Venice are charged a fee between €1 to €5 within the accommodation price for the first five consecutive nights.

People visiting the Spanish city now have to pay €3.25 if they're staying in official accommodation, up from €2.75.

Manchester 

Visitors must pay £1 per room, per night across 73 hotels. 

The scheme, which has raised more than £2m within a year, is for improvements to attract more tourists.

Tourists must pay €2 per person for every night they stay, although this is only applied for a maximum of seven nights.

The Greek government has introduced a Climate Crisis Resilience Fee to charge tourists anywhere from €0.50 to €10 per room, per night.

The amount depends on the hotel category and the time of year.

Visitors to the Croatian city must pay €2.65 per person, per night throughout April to September. 

However, the fee has been temporarily reduced to €1.86 for the rest of this year.

Different amounts are charged depending on the type of accommodation.

The most expensive charge is €14.95 for a stay in palaces, and €0.65 at one or two-star campsites, per person, per night. 

Those staying in a typical four-star hotel are charged around €8.

Those staying in the Hungarian capital are charged an additional 4% each night, which is calculated based on the price of the room.

Tourists in Berlin must pay 5% of the room price, excluding VAT and service fees.

The tourist tax here has increased from €0.82 to €1.97 per day. 

Prices researched by travel insurance site Quotezone.co.uk

The main topics from the Money blog that got you commenting this week were...

Government-funded childcare

• Michel Roux Jr's comments about the future of the restaurant industry 

Nearly 600 new skyscrapers for London

From last Sunday, eligible working parents of children from nine-months-old in England have been able to register for access to up to 15 free hours of government-funded childcare per week.

Those hours can be claimed from September. 

Some readers pointed out the T&Cs... 

This 15 hrs a week is for term time ONLY. So full-time working parents will have to either tell their employer they can't work in school holidays or pro-rata it across the year which is 10 hours a week. Yvonne grandma

Others said it spoke to issues in the wider childcare sector...

Is the government going to give pay rises to nursery staff? They are very low paid staff, and can't get enough staff as it is!! Nurseries may have to close if they don't get staff, so parents won't be able to take up the offer!! What is the government going to do about it? Carol

Chefs or delivery drivers?

Celebrity chef Michel Roux Jr has suggested that restaurants may only open three days per week because young people prefer other jobs - like delivering parcels. 

"Just because I worked 80 hours a week or more doesn't mean the next generation should," he said. 

"Quite the contrary. That is something that we have to address in our industry."

Readers said...

That's because one [job] is on the verge of slave labour and one definitely is slave labour. And the latter I'm referring to is working in a kitchen for a chef.  Realist2024

Spent 35 years working as a chef. Young people nowadays are not willing to do the extra hours (usually unpaid) and work every weekend. Godsends like my generation of chefs did and do.  Bucks

There's been considerable backlash in our comments section after a thinktank said a total of 583 skyscrapers are "queuing up in the pipeline" to be built across central London.

That is more than double the 270 built in the past decade...

"600 new skyscrapers on way for London" while the majority are struggling. When will something serious be done about growing wealth inequality in the UK? A growing economy is useless while the gap between the ultra rich and everyone else increases. Qwerty1

How many unnecessary skyscrapers for London? It's fine, as long as they are not made using steel, glass, concrete or bricks - don't people know there's a climate emergency? Shanghaiwan

Who's paying for it? What about the North? treelectrical

The energy price cap is set to fall by about 7% in July, a respected energy markets researcher has said.

Ahead of next Friday's announcement by Ofgem for the July-September period, Cornwall Insights said: "For a typical dual fuel household, we predict the July price cap to be £1,574 per annum" - a drop from £1,690.

Looking further ahead, it forecasted the cap will rise again slightly in October, before falling in January next year. 

"A predicted 7% drop in energy prices in July is clearly good news, with the price cap looking likely to hit its lowest level in over two years," a spokesperson for Uswitch said. 

Around 100 more prosecutions of sub-postmasters unrelated to the Horizon scandal could be "tainted" , a Sky News investigation has found, as officials worked with now discredited Post Office investigators to secure convictions.

The prosecutions of Post Office staff were led by the Department for Work and Pensions (DWP) between 2001 and 2006.

It is understood these usually involved the cashing in of stolen order books.

The Post Office itself wrongly prosecuted hundreds of sub-postmasters between 1999 and 2015 - based on evidence from the faulty Horizon accounting system.

Read more from our business correspondent Adele Robinson  by clicking  here ...

The UK's mega rich are dwindling in a sign Britain's "billionaire boom has come to an end" , according to the latest Sunday Times Rich List.

The list reveals the largest fall in billionaires in the guide's history - from a peak of 177 in 2022 to 165 this year.

While the combined wealth of the list's 350 wealthiest individuals amounts to more than £795bn - larger than the GDP of Poland - the guide's compiler says time will tell what impact a drop in billionaires could have.

"This year's Sunday Times Rich List suggests Britain's billionaire boom has come to an end," Robert Watts said.

Read on here ...

The Money blog is your place for consumer news, economic analysis and everything you need to know about the cost of living - bookmark news.sky.com/money.

It runs with live updates every weekday - while on Saturdays we scale back and offer you a selection of weekend reads.

Check them out this morning and we'll be back on Monday with rolling news and features.

The Money team is Emily Mee, Bhvishya Patel, Jess Sharp, Katie Williams, Brad Young and Ollie Cooper, with sub-editing by Isobel Souster. The blog is edited by Jimmy Rice.

The Body Shop’s administrators are to launch an auction of the chain after concluding that an alternative restructuring of one of Britain’s best-known high street retailers was not viable.

Sky News has learnt that FRP Advisory, which has been overseeing the collapsed business since January, is to begin formally sounding out potential buyers in the coming weeks.

The move raises the prospect of new owners taking control of The Body Shop, which was founded nearly half a century ago.

Read more here ...

The UK's mega rich are dwindling - in a sign Britain's "billionaire boom has come to an end", according to the latest Sunday Times Rich List.

Published today, the list reveals the largest fall in billionaires in the guide's history - from a peak of 177 in 2022 to 165 this year.

"Many of our home-grown entrepreneurs have seen their fortunes fall and some of the global super rich who came here are moving away."

Top of the list is British-Indian businessman Gopi Hinduja and his family, whose wealth of £37.2bn is the largest fortune in the ranking's history.

But other familiar names in the list saw their riches fall, with Sir Richard Branson's total dropping by £2.4bn, which is back to his 2000 level.

Last year's top climber Sir Jim Ratcliffe, who bought a stake in Manchester United this year, fell two positions with a decline of £6.1bn.

Euan Blair, Tony Blair's eldest son, made the list for the first time, as did Sir Lewis Hamilton.

It comes as the UK continues to deal with a cost-of-living crisis, with new figures this week revealing a record 3.1 million food bank parcels were distributed over the course of a year.

The top 10:

• Gopi Hinduja - £37.2bn
• Sir Leonard Blavtanik - £29.2bn
• David and Simon Reuben and family - £24.9bn
• Sir Jim Ratcliffe - £23.5bn
• Sir James Dyson and family - £20.8bn
• Barnaby and Merlin Swire and family - £17.2bn
• Idan Ofer - £14.9bn
• Lakshmi Mittal and family - £14.9bn
• Guy, George, Alannah and Galen Weston and family - £14.4bn
• John Fredriksen and family - £12.8bn

A group of social media influencers have been charged in relation to promoting an unauthorised investment scheme.

The Only Way Is Essex (TOWIE) original cast member Lauren Goodger, 37, former Love Island star Biggs Chris, 32, and Celebrity Big Brother winner Scott Timlin, 36, also known as Scotty T, are among seven TV personalities alleged to have been paid to promote the scheme to their combined 4.5 million Instagram followers.

The others charged by the Financial Conduct Authority (FCA) include former Love Islanders Rebecca Gormley, 26, Jamie Clayton, 32, and Eva Zapico, 25 and TOWIE member Yazmin Oukhellou, 30.

The UK's financial watchdog brought the charges in a crackdown on "finfluencers" who use their online platforms to offer advice and information on various financial topics.

It alleges that between 19 May 2018 and 13 April 2021 Emmanuel Nwanze, 30, and Holly Thompson, 33, used an Instagram account to provide advice on buying and selling investments known as contracts for difference (CFDs) when they were not authorised to do so.

The watchdog said CFDs were high-risk investments used to bet on the price of an asset, in this case the price of foreign currencies.

It previously warned that 80% of customers lost money when investing in CDFs.

Mr Nwanze has been charged with running the scheme. He faces one count of breaching the general prohibition of the Financial Services and Markets Act 2000, and one count of unauthorised communications of financial promotions.

Ms Thompson, Mr Chris, Mr Clayton, Ms Goodger, Ms Gormley, Ms Oukhellou, Mr Timlin and Ms Zapico each face one count of unauthorised communications of financial promotions.

All nine will appear at Westminster Magistrates Court on 13 June.

The FCA asked anyone who believed they had sustained a loss due to the scheme to contact its consumer contact centre.

A hotel part-owned by Gary Neville and other ex-Manchester United legends has been named one of the best places to work in hospitality. 

Each year, The Caterer releases its top 30 best places for employees in the sector, with the top six featuring some familiar names.

The list is compiled via anonymous employee survey - with no input from managers or owners. 

Hotel Football, the only hotel with a rooftop five-a-side pitch, was among the top six venues selected by employees across the UK. 

The hotel's benefits package was particularly well-praised by those who work there - given that it "prioritises the financial wellbeing of employees during the cost of living challenge".

Management at the hotel, which is situated next to Manchester United's Old Trafford stadium, was also praised for enhanced maternity, paternity, parental and adoption leave policies and a strong belief in diversity and inclusion. 

The other five to make up the top six are The Biltmore in Mayfair, Cycas Hospitality (which has 18 locations across the UK), Dalata (which boasts some 1,000 employees), Gleneagles Hotel in Edinburgh and Nobu Hotel in Shoreditch, London. 

The energy price cap is set to fall by about 7% in July, a leading thinktank has said. 

Cornwall Insights said: "For a typical dual fuel household, we predict the July price cap to be £1,574 per annum" - a drop from £1,690.

Looking further ahead, it forecasted the cap to rise again slightly in October, before falling again in January next year. 

Reacting to the news, Uswitch said the predicted drop was "clearly good news". 

"The future still remains uncertain, and with the price cap changing every three months – currently expected to rise in October before falling slightly in January –  it's crucial not to be complacent," Richard Neudegg, director of regulation, said. 

However, "a predicted 7% drop in energy prices in July is clearly good news, with the price cap looking likely to hit its lowest level in over two years", he said. 

He also urged  households who want to lock in rates for price certainty to run a comparison to see what energy tariffs are available to them.

"There are many 12-month fixed tariffs available at rates cheaper than the current price cap, and even some that are 2% below these new predicted July rates," he said. 

Be the first to get Breaking News

Install the Sky News app for free

CITGO Retirees Get Class Status in Benefits Calculation Suit

By Bernie Pazanowski

CITGO Petroleum Corp. and its retirement plans must face a federal class action brought by plan participants claiming that their benefits were miscalculated.

The plaintiffs said that the defendants violated the Employee Retirement Income Act by using out-of-date mortality assumptions to calculate their benefits from Jan. 1, 1995 to Jan. 1, 2018. They told Judge Matthew F. Kennelly of the US District Court for the Northern District of Illinois that there are 1,773 class members and that the underpayment was at least $31,713,141.

CITGO argued against class certification, saying many of the potential class members’ claims are time-barred. The company ...

Learn more about Bloomberg Law or Log In to keep reading:

Learn about bloomberg law.

AI-powered legal analytics, workflow tools and premium legal & business news.

Already a subscriber?

Log in to keep reading or access research tools.

Steward outlines plan to offload hospitals in legal filing

Attorneys for Steward Health Care want a federal judge to bless the company’s proposed process for selling or auctioning its 31 hospitals, including eight in Massachusetts, over the next seven weeks.

A late Wednesday night filing in the US Bankruptcy Court case that started last week proposes “global bidding and auction procedures” to govern the sale of Steward’s hospitals and its physician network, Stewardship Health. If Judge Christopher Lopez approves the company’s motion, bids for Steward’s Massachusetts hospitals (and hospitals in other states aside from Florida) would be due June 24 and sale hearings would be held July 2.

A hearing on the motion is planned for June 3 at 2 p.m.

Advertisement

Steward’s lawyers said the proposed sale process is “designed to continue to promote a competitive and robust bidding process, while allowing the Debtors to implement sale transactions on an expedited basis.”

Governor Maura Healey, Attorney General Andrea Campbell, and other state leaders want Steward out of Massachusetts, but the company has not secured buyers for its Bay State hospitals in the months since its financial predicament came to light.

Steward began marketing some of its hospitals in January, relying on the investment bank Cain Brothers to execute a strategy with the goal of “continuing critical operations at the Debtors’ core Hospitals while maximizing value by selling certain non-core Hospitals, including the Debtors’ Hospitals in Arizona, Arkansas, Louisiana, Ohio, Pennsylvania, and Southern Massachusetts.” Leerink Partners was tapped in February to market Steward’s “Northern Massachusetts” hospitals.

By the time Steward filed for bankruptcy on May 6, Cain had contacted 179 potential buyers and Leerink had contacted 80 potential buyers, including for-profit and not-for-profit organizations, the company said. Steward’s lawyers said the company “received numerous indications of interest for their Hospitals” before filing for bankruptcy, but also that it expects more potential bidders to become aware of the sale through the bankruptcy proceeding, “thus driving more interest in the Hospitals.”

Lawyers for Steward said the company has “received attractive indications of interest from multiple potential buyers for its Southern Massachusetts and Arizona hospital operations” and also is “in discussions with various third-parties interested in purchasing and operating the Debtors’ hospitals in Northern Massachusetts, as well as with state officials and regulators to facilitate the transition of such hospitals to new operators.”

The company’s lawyers and Massachusetts state officials have acknowledged that selling the hospitals could be difficult thanks to the sale-leaseback transaction that saw Medical Properties Trust buy the land beneath Steward’s hospitals in 2016.

In Wednesday night’s filing, Steward confirmed that “substantially all” of its hospital operations are subject to master leases with MPT that “are not severable as to any particular property absent the consent of the applicable MPT Lessor(s).” The company said it “intend[s]to solicit Bids for the Debtors’ operations separately from real estate” and that bidders could “indicate the proposed treatment of such real property in their bid.”

Last week, a lawyer for Steward told the bankruptcy court that the company faces a June 25 deadline to auction its hospitals in Massachusetts and other states except for Florida under the terms of a loan it got from its landlord, MPT. But he also said that timeline was “not feasible.”

Steward’s lawyers also fired back at Campbell’s office, which was critical of the sale process Steward undertook before its bankruptcy in a filing last week , saying that “[a]s with all things Steward, this too was horribly mismanaged.”

“Yet notwithstanding that there are experienced professionals overseeing and leading the process, certain parties, including the Commonwealth of Massachusetts, have elected to lodge completely unsubstantiated criticisms about the Debtors’ sale process,” Steward’s lawyers wrote. “Although frustration with the Debtors’ financial circumstances and the need to commence these chapter 11 cases is understandable, filing unfounded and unsubstantiated pleadings at a time when a team of experienced and independent professionals and directors have been and are continuing to run a process (and who have managed similar processes across multiple venues in a myriad of complex chapter 11 cases) that will benefit all stakeholders, is neither appropriate nor will it be tolerated by the Debtors.”

Campbell’s office said that the Executive Office of Health and Human Services here was informed by potential buyers “that they were being excluded from participating and the separate processes made it difficult for any single bidder to bid for all of the hospitals.” Steward’s latest filing contended that the company “encouraged bids from all interested parties and did not exclude any parties from the process, nor preclude any potential transaction structure.”

Massachusetts was the only state that had its officials listed as “interested parties” in Steward’s bankruptcy case until Tuesday, when the Texas Health and Human Services Commission filed an appearance in the case.

Officials in other states are beginning to pay closer attention to the floundering health system as well.

On Friday, Arizona Attorney General Kris Mayes announced that she was launching an investigation into the circumstances leading up to Steward’s bankruptcy filing and is considering intervening in the court proceeding “due to its potential negative effects on Arizona patients, providers, healthcare workers, and vendors.”

In Massachusetts, Steward operates St. Elizabeth’s in Brighton, Carney Hospital in Dorchester, Good Samaritan Medical Center in Brockton, Holy Family Hospital in Methuen and Haverhill, Morton Hospital in Taunton, Nashoba Valley Medical Center in Ayer, Norwood Hospital, and St. Anne’s in Fall River.