#Legal entity of venture capital company how to

“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. When you set up a sole proprietorship, one person is responsible for all a company’s profits and debts. Sole proprietorshipĪ sole proprietorship is the simplest business entity. Here’s more about each type of legal structure. The most common business entity types are sole proprietorships, partnerships, limited liability companies, corporations and cooperatives. If you have to expand your business to another state, you won’t have to create a new company or structure, but you may have to register it as a “foreign entity.” Types of business structures However, changing your business structure can be a disorganized, confusing process that can lead to tax consequences and the unintended dissolution of your business. 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.That right is primarily reserved for corporations. For example, sole proprietorships generally can’t offer stocks. Fundraising: Your structure can also block you from raising funds in certain ways.You can’t apply for an employer identification number (EIN) or all your necessary licenses and permits without a business structure. Registration: A business legal structure is also a prerequisite for registering your business in your state.Other structures lack this closure protection. Corporate hierarchies also prevent business closure if an owner transfers shares or exits the company, or when a founder dies. In certain states, this board must meet a certain number of times per year.

Hierarchy: Corporations must have a board of directors.If you start a business partnership and do business under a fictitious name, you’ll need to file special paperwork for that as well. Additionally, if you structure your company as a corporation, you’ll need to submit articles of incorporation and regularly file certain government reports. Paperwork: Each business legal structure has unique tax forms.C corporations are a federal business structure that includes the liability protection of LLCs. That said, the federal government does not recognize LLC structures they exist only on a state level. Liability: Limited liability company (LLC) structures can protect your personal assets in the event of a lawsuit.Given the different tax rates for business and personal incomes, your structure choice can significantly impact your tax burden. C corporation income is business income separate from an owner’s personal income. Taxes: Sole proprietors, partnership owners and S corporation owners categorize their business income as personal income.Why is a business legal structure important?Ĭhoosing the right business structure from the start is among the most crucial decisions you can make. On a state level, it can have liability ramifications. On a federal level, your business legal structure determines your tax burden. What is a business legal structure?Ī business legal structure, also known as a business entity, is a government classification that regulates certain aspects of your business.

#Legal entity of venture capital company how to

We’ll explore business legal structures and how to choose the right structure for your organization. It can also determine how often your board of directors must file paperwork – or if you even need a board. It can put up a barrier between your personal and business taxes – or ensure this barrier doesn’t exist. It can determine how much liability your company faces during lawsuits. Your business’s legal structure has many ramifications.

This article is for business owners looking to learn more about the different small business legal structures.

Corporations may take more work to start, but they offer liability protection and, in some cases, more favorable tax rates.

Sole proprietorships and partnerships are relatively easy to start, but they lack liability protection.

Your business’s legal structure determines your tax rates, management and paperwork requirements, fundraising abilities, and more.