Establishing the legal form for your business

The description of your business section must also mention the business form or legal structure that you have selected for the business. The four types of legal structures are: sole proprietorships; partnerships; corporations; and limited liability companies. Your selection should be based on the goals of the business and consider the tax and personal liability consequences that are unique to each legal structure.

If you are starting a home-based business to sell newsletter subscriptions, it is more than likely that you will select the sole-proprietorship as the legal structure for your business. It is easy to set-up, does not require any legal form of business organization, and requires the least amount of tax reporting to state and federal agencies.

On the other hand, if you are planning to purchase a factory to build jet-airplanes, you will certainly consider incorporating your business. Although a corporation is much more difficult to set-up than a proprietorship, requires expert legal advice, and significant resources to prepare tax returns, it provides limited liability for the owners in the event of a lawsuit.

Before finalizing your decision, you should consult with an attorney and be aware of the documents that must be filed with federal, state and local governments.