Legal Forms You Should Be Aware Of

As a business owner or individual, it is important to be aware of the various legal forms that exist. Legal forms are essentially the structure in which a business or organization is organized and run. Each legal form has a different set of requirements and benefits, which can impact your business in different ways. In this article, we will be discussing the most common legal forms you should be aware of.

Sole Proprietorship

A sole proprietorship is the simplest form of business structure and involves one individual who owns and operates the business. The owner is responsible for all aspects of the business, including management, profits, losses, and debts. There is no legal separation between the owner and the business entity.
This means that the owner’s personal assets are at risk if the business incurs debts or legal liabilities. Sole proprietorships are not required to register with the state, making them easy and inexpensive to set up and operate. However, taxes are filed under the owner’s personal tax return.


A partnership is a business structure that involves two or more individuals who share ownership and management responsibilities. There are two main types of partnerships: general partnerships and limited partnerships.
In a general partnership, all partners have equal management authority and are equally liable for the debts of the business. A limited partnership, on the other hand, has at least one general partner who manages the business and is personally liable for the debts and legal liabilities. The other partners are considered limited partners and have limited liability for the debts of the business.
Partnerships must file a partnership agreement with the state and operate under the terms of the agreement. Taxes are also filed under the personal tax returns of the partners.

Limited Liability Company (LLC)

A limited liability company (LLC) is a hybrid business structure that combines the liability protection of a corporation with the tax benefits of a partnership or sole proprietorship. This means that the owners, known as members, have limited liability for the debts and legal liabilities of the business.
LLCs are not required to have a board of directors or hold shareholder meetings, making them easier to manage than corporations. They must file articles of organization with the state and operate under an operating agreement. Taxes can be filed as a partnership or as a corporation.


A corporation is a separate legal entity that is owned by shareholders. The corporation is managed by a board of directors, and the shareholders have limited liability for the debts and legal liabilities of the business. This means that the personal assets of the shareholders are not at risk if the corporation incurs debts or legal liabilities.
Corporations must register with the state and have bylaws that govern the operation of the business. They must hold annual shareholder meetings and file annual reports with the state. Taxes must be filed as a corporation.

Nonprofit Organization

A nonprofit organization is a type of business structure that is established for charitable, educational, religious, or scientific purposes. Nonprofits are exempt from federal income taxes and may be exempt from state and local taxes as well. They must file for tax-exempt status with the IRS.
Nonprofits are governed by a board of directors and operate under bylaws that outline the purpose and operation of the organization. Unlike for-profit corporations, nonprofits cannot distribute profits to shareholders or owners.


In conclusion, there are various legal forms to choose from when establishing a business or organization. Each legal form has different requirements, benefits, and risks. It is important to carefully consider your options and choose the legal form that best suits your needs. Consulting with a business attorney or accountant can help you make an informed decision.

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