Part 1/4 | Business Law Basics for Founders: Choosing the Right Business Structure

Transcript

If you have a business idea, you may be thinking about which company structure is right for you. It's important to understand the different types of company structures and their implications. The three most common types of company structure are sole proprietorship, limited liability company, and corporation.

A sole proprietorship is the easiest company to get started. It's basically just the owner of the company acting as the company itself. There's no distinction between the entity and the owner, although this can create risk, because the company's liabilities pass directly to the owner of the company. This is suitable for individuals who want to get started on their own and want to limit overhead costs.

The next type of company, a limited liability company, often referred to as an LLC, is suitable for small to medium-sized businesses, potentially with multiple owners. A limited liability company creates an additional layer of protection for its owners, because the company is a separate entity and the liability is passed to the company itself, not the individual owners. An owner in an LLC is referred to as a member, and an LLC can be a member-managed LLC or a manager-managed LLC, where the manager can be one of the members or an individual outside of the company.

A corporation, similar to an LLC, creates an additional layer of protection, where the liability passes to the company itself. The owners of a corporation are referred to as shareholders, and a corporation is appropriate for companies, small or large, that are potentially looking to be acquired. Companies structured as a corporation can raise capital by issuing stock, which can later lead to an acquisition.

At TCLG, we can help you go through these different options for what company structure might be suitable for you, and help you figure out how best to proceed.