Choosing a Legal Structure for Your Business

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Missouri and Kansas law allows for the following types of legal structures for a business firm: sole proprietorship; partnership; limited liability company and corporation (both C and S corp). There are many modifications and variations within these forms and each has its own advantages and disadvantages. The entrepreneur must decide which structure best suits his or her type of business as well as his or her own personal situation.

Choosing the legal structure of your business requires consideration of many factors. Here are some of the questions you need to ask:

How easy is it to set up and operate? Some forms of business are easier to set up and operate than others. This may be an important factor if start up funds are limited. However, it should not be the only factor.

    You should also ask yourself - to what extent are you willing and able to be responsible personally for business debts and losses? If your business poses a risk of injury or personal damage, this is an important consideration. Protecting your personal assets from claims against your business may be an overriding factor in your choice of legal structure. Of course, you cannot eliminate risk altogether, so good insurance planning is also critical.

Another factor which should be considered is - what are the tax advantages and disadvantages of the form of business you select? Different forms of business are taxed differently and it is important for you to understand how your business will be taxed.

In choosing a business structure, consult with both a qualified accountant and an attorney. Do not hesitate to ask an advisor why a particular form is being recommended, what other options are available and why the advisor recommends one over others. A good advisor should be able to explain these things to you in terms you can understand. Be prepared to pay for such advice. It is an important investment in your business.

Barbara Cunningham, CunninghamB@missouri.edu
Business Development Specialist
Clay County, Missouri
University of Missouri Extension