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Why does the structure of a business matter?

Businesses are started each and every day. In Chicago and throughout the nation, new entities pop up with incredible speed. While not all businesses make it through their first years of operation, many fall into successful patterns to move their corporate objectives forward.

One of the most important decisions that a new business owner can make when they start their enterprise is the structure that the business will take on. Depending on the structure it is given, a business may hold its own liability for certain matters or that liability may be held by its owners. This post will generally discuss the importance of choosing the right structure for a new business, but no part of this post should be substituted for independent legal advice.

Business structures and debts

It is not uncommon for a business to be sued for a perceived or actual instance of wrongdoing. When an entity is found liable of a legal wrong, or accrues a financial loss that it is required to pay, the structure that they business utilizes can alter who is responsible for the obligation. A sole proprietorship is not financially separate from its owner, and therefore the owner of a sole proprietorship may be individually liable for their business’s losses. A corporation, on the other hand, is its own legal person and exists separately from the parties who brought it into existence.

Business structure and taxes

Like debts and losses, taxes are another obligation that can fall upon business owners, depending on their entities’ structures. Partnership owners may be pursued for their businesses’ unpaid taxes, though individuals who create limited liability corporation start-ups may be protected from such liability due to their businesses’ structures. Before setting up a business, an individual should have a clear understanding of how they may be personally tied to the entity’s finances and legal duties.

This post is only an introduction to the many areas where personal and business duty may overlap. Getting a business structure right is important not only for the entity, but also its owner. A business law attorney can provide invaluable counsel to their start-up client so that they establish their business according to their needs.

 

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