Which legal structure is best for your business?

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One of the decisions a startup founder needs to make is choosing the right legal structure for the company. There are many solutions available. Good examples are the forms available in the United States, although they also appear in other countries under different names. Which legal structure works best for a startup? Read our article and find out.

Which legal structure is best for your business? – table of contents:
Individual entrepreneur
Limited Liability Company (LLC)
Partnership
C corporation (C-corp)
Why do investors like corporations?
What legal structure works best for a startup?
Individual entrepreneur
Startup founders face many difficult decisions, and choosing the right legal structure for their company is one of the most important. There are several options available, and each has its pros and cons. The azerbaijan whatsapp number database solution is to establish an individual entrepreneur, as it does not involve complicated procedures, and such a business does not have a legal personality.

In this case, for the tax authorities, the owner and the company are the same entity. You do not need to register such a business with respect to the US. It is enough to start a business activity and pay taxes. However, if you need to obtain a license or permit, go to the appropriate office. If you want to reserve a name for the company, apply for a DBA certificate.

Limited Liability Company (LLC)
Another popular legal structure for startups is the LLC, or limited liability company. Why is it so advantageous in the United States? First of all, the costs of starting such a company are low, and the company's profits are included in the annual personal income tax return.

What’s important, however, is that the company’s shareholders are not personally liable for the startup’s debts and legal obligations . In this case, the company exists as a separate entity, not directly connected to the founder’s assets. This legal structure will make your business more credible.

Partnership
A very popular choice for a startup is the partnership structure. Such an organization can be owned by at least two people. There are two options: general partnership or limited partnership. The first is the cheapest and easiest to set up. In this case, the responsibilities are shared between all partners equally.

In a limited partnership, on the other hand, one founder is responsible for running the startup, while the other partners receive a fraction of the profits but also have limited liability in the company. A general partnership seems to be a better option, as it has a more transparent structure and is easier to attract investors.

legal structure
C corporation (C-corp)
Sooner or later, successful startups become C corporations (e.g. Google). A C corporation is a legal entity entirely separate from its founders, which is required to prepare annual reports and pay corporate taxes. A board of directors is required for such a structure.

Such a corporation is regulated at the state level, and the cost of setting up such a company depends on the specific US state. The owner of a C-Corp is the person who owns shares in it. These shares are transferred, which changes the structure of the company. The shares of such a company are sometimes listed on the stock exchange. The income of a C-Corp is taxed twice.

Why do investors like corporations?
If you’re serious about attracting investors, you have the best chance of doing so with a C-corp structure. This is the form that most investors love. Why? In the case of a limited liability company (LLC), investors have to pay additional taxes on their share of the startup’s profits.

It’s easy to guess that they don’t like this, and startups often miss out on raising capital because of it. LLCs can have no more than a hundred shareholders, and only American ones, and they are prohibited from raising capital investments from other companies. In the case of a C-Corp, there are no such restrictions.

legal structure
What legal structure works best for a startup?
You’ve just learned about some of the most popular legal structures a business can adopt. Which structure works best for a startup? The business structure you choose should align with your established business goals. These, in turn, should be determined at the stage of creating a business plan.

It is impossible to immediately decide whether an LLC will be better than an individual entrepreneur. It all depends on the situation of a particular startup. After all, the structure of the company can be changed when necessary. However, it seems that the target structure is a C-Corp, which is often demanded by investors.

Also read: 7 startup roles explained.

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