Six steps in choosing the right legal business structure


A business structure is a status a business or a company attains that is legal. It is the first task that an entrepreneur should handle before starting up a company for the new entrepreneurs or venturing into a new idea for the old business people. Some business structures are legally recognized, and the choice of any affects either directly or indirectly, the daily operations of the business. The determination of the business structure, therefore, requires careful considerations.

The most common legal business structures are a sole proprietorship, corporations, limited liability companies, partnership, and S Corporations. The following factors should be considered to choose the right business structure.


Control is an essential factor to consider when starting a business entity of your choice. The business legal structure you choose will determine the level of control you wish to have over the business. This will decide whether or not you will have complete control over the company.

If an entrepreneur wants to have full control over the company, then a sole proprietorship would be the best. Different legal business structure has a different management structure, and therefore the business structures are controlled differently. The type of the business structure you choose will, thus, determine the aspects and the assets of the business that you will legally control.

Limitation of Liability

The protection from the personal legal liability is an important aspect to consider before choosing the right type of business structure. Before starting up a business and deciding the kind of business to run one needs to find the extent of protection from personal legal liability. It refers to protecting your assets as the owner from being liable for any loss or debt that may be incurred by the business. For example in sole proprietorship type of business, the owner’s assets are used to settle debts or losses that the company would fail to pay. However, some complex business structures have a limited liability over the owner’s assets. If you find it challenging to understand how this works, you can work with consultants such as Gold Coast Accounting TWAccounting to help you through.

Flexibility and Future Needs

Flexibility and future needs of the business are factors that need considerations before setting up a business especially when one is looking forward to seeing the company succeed in future and meeting the future goals that you set.

When choosing a business structure, one needs to consider the flexibility of the business to changes such as expansion and even the requirements that will be required in the future as the company grows. Some structures will need legal penalties in the event of an increase, and thus the choice would not be appropriate if the extension is the goal of the entrepreneur.

Cost and Complexity

It is necessary to consider the cost and complications of starting up a business before choosing the right legal business structure to run. Each type of the business structure differs in the capital of starting, start-up procedures, complexities of the formation. For example, a sole proprietorship requires little money, few processes that are needed for legal reporting and is simple to start and to organize. The setting up of the business itself is simple and requires simple management and organization which involves the owner organizing them.

However, when starting a company or a corporation, you will need a lot of reporting with very many and complex procedures. The cost of starting this type of the business is relatively high than it is for a sole proprietorship. This kind of activity will require the arrangement of meetings, use of many legal documents that are needed and are needed to be set up by a solicitor or an accountant.

Tax Implication

The choice of the business structure has a directly have an impact on the amount of tax that you will pay. Many entrepreneurs will want to avoid the problem of double taxation and thus depending on the choice you make on the type of legal business structure to run will determine the amount of tax you will pay. When choosing the type of business structure to use on setting up your business, you also need to consider the tax implications both locally, regionally and even internationally.

The owner of a sole proprietorship type of business structure that is operating in just a small area will end up paying less tax than a company or a corporation that has a large area of operation whether locally, regionally or even internationally.  Therefore before choosing a legal structure type of a business one should consider the impact on the tax

Ongoing/ Future Administration Needs

It is an essential factor to think on well enough before setting up the legal type of business of your choice on the complexity and the strictness required in record keeping and the reporting procedures that differ with the kind of business structure. It requires that you consider if you have the ability, time and skills to be able to abide by the record keeping requirements that are legal and strictly enforced. Therefore one should ensure that the records are kept and updated well depending on the conditions with the type of business structure you choose.


The choice of an appropriate legal business structure is a vital decision an entrepreneur should make for a business. You should also make several consultations to ensure the type of the legal structure you choose is the one that best fits you.


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