Legal structure of a business

When you start a business, first of all you must establish the business structure, since it will depend on which tax return form you must submit, you want to know which one to choose according to your needs, keep reading …

What are the types of business structure

The business structure it can be from individual owner, corporation, SRL corporation or limited liability company. Each of them has different requirements and benefits:

Single owner:

The sole proprietorship structure is the simplest to start your business. Being the sole owner you have all the benefits, but you are also responsible for all debts, obligations and losses that may arise from your business.

Anyway, you must obtain the permits and licenses that are required by the state and city, which are variable depending on the location of your business and the industry.

In the event that your business operates under a name other than your own, you must have a business name permit, called DBA.

The business will not be taxed separately and you will report income and expenses from the 1040 form. However, despite being an easy structure to establish, it has advantages and disadvantages.


In a society there is a relationship between two or more people united to carry out a business, therefore you will establish the business with partners and each of them will contribute money, their ability, work or property and therefore all will participate in the profit and loss.

If you form a company, you will file a declaration on the annual information for the reporting of deductions, income, gains and losses but you will not pay income tax.

However, to create a partnership, you must register your business in your state through the Secretary of State’s office.

At the same time, you must create the name of the company, because if you do not decide to operate with your own name, you must register the fictitious name and after registering you must obtain all the permits and licenses according to the regulations that are different according to the city and the state and even if you hire employees you should know the state and federal regulations for employers.

You must register with the IRS, local and federal income tax agency in order to obtain the tax identification number. You must also file the annual information statement, as it is the way you report discounts, income, profits and losses on the operations of your business.


The corporation is a more complex structure and must be formed in accordance with the laws of the state where it is registered. You can establish the business name and register it as legal with the state government.

If you choose a fictitious name, you will present it for registration including at the end of the name the corporate designation such as: limited, incorporated or corporation.

You will need to file bylaws with your state secretary of state’s office, and you may also need to establish directors who will issue stock certificates to shareholders.

If you choose this type of structure, you should contact the commercial entities registry office in your state and you will know the requirements to form your business.

Limited liability company:

If you decide to establish a limited liability company, you must choose the name of the company other than a company of this type that already exists in your state and you must indicate that it is an LLC, but the name will not include words that are not allowed, for example word safe and bank are restricted.

You must present the articles of incorporation with all the information about your company including the name, address and the names of the members that comprise it. Generally, you will file this document with your state secretary of state or with the State Corporation Commission.

Advantages and disadvantages of business structures

Sole Owner: (Pros and Cons)

Advantage: As an advantage of the business structure sole proprietorship is its easy and inexpensive constitution, it is you who has all the control of the business, of all decisions including changes.

It is also easy to prepare taxes and therefore it is easy for you to comply with the tax reporting requirement, since their rates are lower.

Disadvantages: However, it also has disadvantages, because by not being legally separated with the business, you will be responsible for the obligations and debts.

In this type of structure, fundraising is not easy, since your business will not have shareholders and therefore it is not an attractive condition for investors or banks.

Society: (Advantages and disadvantages)

Advantage: It is not your business that pays the rents but transfers profits and losses to the partners. Generally, corporate taxes are: the annual income tax return, consumption taxes and employment taxes

In turn, the partners are responsible for income tax, estimated tax and self-employment tax.

Disadvantages: Establishing a company is also cheap and easy. Each partner will have invested equally to form the company. However, the partners in addition to being responsible for their actions, they are also responsible for the debts and decisions made by the other partners and the personal assets of all can be used to cover debts.

Corporation: (Advantages and disadvantages)

Advantage: Once you register the business, you will obtain the corresponding permits and licenses according to the locality, state and industry.

Ddisadvantages: You must pay state, federal and local taxes and register with the IRS in addition to receiving the tax identification number.

Limited Liability Company: (Advantages and disadvantages)

Advantage: By forming a limited liability company, all the members that comprise it are protected from personal liability, therefore, when faced with a company debt, the members are not obliged to respond with their personal capital, but illegal acts are not included. that they could have committed.

Even the profits can be distributed among the members as they prefer.

Disadvantages: Depending on each state, if one of the members leaves the LLC, the company is dissolved and the rest of the members must comply with business and legal obligations for the company to be closed and all members are considered self-employed.