The Importance of Legal Understanding - Learning the ins and outs of Business



You’ve finally decided on everything for your business. You know what you want to make or sell, who you want to sell it to, and how you’re going to make a profit doing it. You’ve looked into every marketing and development tool you can and you’re ready to start generating money. Now you can do whatever you’d like in order to get your business going… right? The truth is, there are many laws regulating and governing the whys and hows of business operations and while you certainly don’t need to be a business major or a lawyer to understand the steps required to open your company the right way, it is still important to make sure you know exactly what you have to do in order to keep things controlled and legal for your enterprise. One of the first things you’ll need to look into and learn about is business structures. Before your business can go public and make your dreams come true, you must figure out which company structure makes the most sense for you.


Now don’t be worried, “business structure” might sound like some corporate buzzwords, but the truth is it’s just the legal way in which you (and the world at large) view your company. So what are the different types of business structures? Some of the most commonly used and known business constructs are sole proprietorships, C corps, S corps, and Limited Liability Corporations (LLC). A sole proprietorship is exactly as it sounds. It’s a business that is owned and run by a single person and where there are no legal differences between the owner and the business itself. In terms of taxes, the income and losses of the business are taxed on the owner’s personal income tax return. A corporation does the opposite, wherein the business is a separate entity that is controlled by a group of people known as a board of directors or shareholders. This means that in a C corp, the shareholders are taxed separately from the business itself. S corps, on the other hand, are designed to help small businesses because all the profits, losses, deductions, and credits are passed through the shareholders before they are subject to being taxed. Finally, an LLC is a type of hybrid structure where you merge the pass-through taxation of a sole proprietorship with the limited liability of a C corp. This allows you and your company to enjoy a tax break while still maintaining differences as legal entities. This results in separation between you and your business legally and if your business ever comes under legal scrutiny, it won’t necessarily fall on you as hard. Most small business owners are going to be sole proprietorships, but you should figure out which of these entities makes the most sense for you and then be ready to commit your company to that business structure when you start it up.


The legality behind your business and which entity you choose is an important decision, but it’s one that you can and should make with plenty of awareness. One of the best ways to determine more about these concepts is to use an online resource to obtain the information required straight from the source. Websites like irs.gov or legalzoom.com are excellent assets at everyone’s disposal to learn more about the ins and outs of business structure. Take the time to use these resources to make a better and more informed decision, and your business will thrive for it.

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