In an ever-changing world where laws and regulations are updated and modified constantly, every business should ensure having legal advice that helps the company stay by the law.
What Are the Legal Services?
Legal services for businesses are essential from the very beginning, and finding the right legal business partner can help you in:
- Providing consultation during incorporation on the most suitable form for the business.
- Protecting the shareholders' assets from the business's legal issues.
- Writing and revising all sorts of contracts (employment, partnerships, ...).
- Restructuring the business and insolvency issues.
- Implementing intellectual property law (safeguarding trademarks and copyrights).
- Providing legal, financial support for capital raising, paying taxes and other financial requirements.
What Are Incorporation Services?
Incorporation service is the process of setting up and registering a business to have a legal form. Incorporation can take many forms, such as limited liability companies, sole proprietorship, Non-Profit Corporation, ...).
Incorporating a business will protect investors' assets and facilitate the transfer of ownership in cases of partnership or acquisitions and raising capital through stocks.
The incorporation process can be complex depending on the type of the business, and having a resourceful professional corporate service provider can mitigate the process. Professional corporate services will:
- Advice on the best entity form for each business.
- Create the “articles of incorporation.”
- Submit all the paperwork needed for the incorporation and the annual maintenance documents.
- Ensure compliance with the tax regulations.
- Facilitate opening offshore branches.
What Are the Types of Business’s Legal Forms?
The legal form of a business lays the foundations for every other aspect in the future of the business; it has an impact on:
- The taxation of the business.
- The legal liabilities of the shareholders/investors.
- The investments during the incorporation.
- The costs of running the business.
So, choosing the wrong form of business can cause severe financial and operational hurdles for the business owners.
There are 4 main types of legal forms of business:
1. Sole Proprietorship.
2. Partnership.
3. Corporation.
4. Limited Liability Company.
1. Sole Proprietorship is the simplest form of incorporation, where only one person owns the business, who is responsible for legal liabilities related to the firm. This form is prevalent among entrepreneurs since it is easy to register and does not need any legal requirements.
2. Partnership is when two or more partners come together to form a business. There are 3 types of partnerships:
- General partnership: in this form, all partners share the profits and the liabilities in paying debts equally.
-Limited Liability partnership (LLB): in this form, the partnership agreement includes limitation to the personal liability of each partner in paying debts and other legal liabilities.
-Limited partnerships is a combination of general partnerships and limited liability partnerships, where there is an appointed one or more general partner responsible for the debts and liability of the business. In addition to one or more silent partners whose liability is limited to the amount invested.
3. Corporation is an entity with a separate legal form from its owners. It also includes separating the ownership of the firm from its management since the corporation trades stocks for ownership and shareholders are not responsible for any legal liabilities or debts. However, shareholders may receive dividends for their shares in the business, which will be double taxed, first as corporate profit tax then as income tax.
4. Limited Liability Company is a hybrid form of business between corporation and partnership, it is easier to establish and avoid double taxation of profits.
How to Choose Which Type of Business Entity to Form?
One of the most critical decisions for any new business is choosing the type of legal form suitable for this business. An idea for a venture could be easy but how to formulate it onto a legally functioning entity is a different thing. There is no right or wrong in this area specifically; founders have to weigh in the pros and cons of each legal form, consider their objectives for the business growth in the long run, and consult with a legal and tax firm to determine the appropriate form for the business in this stage.
There are also a few important points to take into consideration when choosing the legal form:
- Legal Liability: consider the degree of founders and shareholders involved in the legal liability of the business and their interest in protecting their personal assets.
- Taxes: every business form has different types of taxation; some can include double taxations, which is not helpful for small businesses.
- Flexibility: choosing the right legal form that supports future expansion goals facilitates the growth of the company.
- Goals & Objectives: businesses with plans for raising funds may need to consider corporation forms rather than a sole proprietorship.
Legal forms can change over time depending on the growth of the business and the changes in its structure to meet the business's new goals and objectives.
Comparison Between Business Forms
| Business Form | Ownership | Taxes | Raising Capital | Profits | Legal Liability |
| Sole Proprietorship | 1 Person | Personal Taxes only | Difficult | All for the owner | Owner is responsible and personal assets at risk |
| Partnership | 2 or more | Personal Taxes | Accessible | Shareable between partners | All partners responsible (unless in case of limited partnership) |
| LLC | 1 or more | Personal taxes Self-Employment |
Easy | Profits and losses don't have to be distributed in proportion to the money each person puts in | Owners are not liable |
| Corporation | 1 or more | Double Taxation on profits (personal + corporate) | Easy | Profits and losses belong to the corporation | Owners are not liable |
Choosing the appropriate form for your new business requires extensive research and deep knowledge of the laws and regulations in your jurisdiction area, so it is better to consult with a local legal and tax firm to help make the best decision for your business.
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References
https://aofund.org/resource/small-business-legal-advice-10-basics-business-owners
https://www.inc.com/encyclopedia/legal-services.html
https://www.investopedia.com/terms/i/incorporate.asp
https://www.rifkindpatrick.com/Blog/2015/November/The-4-Major-Business-Organization-Forms.aspx#:~:text=There%20are%204%20main%20types,the%20scope%20of%20business%20law
https://saylordotorg.github.io/text_mastering-strategic-management/s13-04-legal-forms-of-business.html
https://www.investopedia.com/terms/p/partnership.asp
https://www.entrepreneur.com/article/38822
https://www.businessnewsdaily.com/8163-choose-legal-business-structure.html
https://www.nationwide-incorporators.com/article-how-to-choose-right-entity