Today’s Tip
Best Practice: Six types of legal structures to build your brand around: Sole Proprietorship, LLC, Corporation, Partnership, Cooperative or Non-Profit
Today’s Article: Six Types of Legal Structures to Build Your Brand Around
Your brand is one of your most valuable business assets. The legal structure selected is one way to protect the business brand. There are six types of legal structures to build your brand around: Sole Proprietorship, Limited Liability Company, Corporation, Partnership, Cooperative, Non-Profit.
1. Sole Proprietorship An individual sets up the business as a person. The business name can be the owner’s name or a DBA name (doing business as). Example: business owner’s name is Steven Smith doing business as Spotless Window Cleaning.
Pros: A sole proprietorship is the easiest and simplest type of business to establish and manage.
Cons: The owner, as an individual, owns the company and is responsible for its assets and liabilities. If the business is sued, the owner’s personal assets can be at risk. One way to address this is to have business liability insurance. Generally, as a Sole Proprietorship, the business name is not protected in the state, unless you file a LLC, Corporation, Partnership, Cooperative or Non-profit.*
2. Limited Liability Company (LLC) For start-up and small to medium-sized businesses this is a simpler and easier form of legal structure than a corporation. “The ‘owners’ of a LLC are referred to as ‘members’. LLC members report profits and losses on their personal federal tax returns, just like the owners of a partnership would.”
Pros: A LLC is designed to provide the limited liability features of a corporation. If the business is sued, the owner’s personal assets are more protected. The LLC has the tax efficiencies and operational flexibility of a partnership. When the LLC business name is registered with the state, no other business can use the same name in the state.
Cons: In most states, there is a one time fee to register the LLC with the state. There is also an annual fee to be paid each year to the state. It can be more expensive to have the taxes prepared each year versus a Sole Proprietorship. *
3. Corporation A corporation or C corporation is an independent legal entity owned by shareholders. The corporation, not its shareholders, are legally liable for the actions and debts the business incurs. This legal structure is used by larger companies with multiple employees.
Pros: Some people see a Corporation as a more secure stable business structure. When the Corporation business name is registered with the state, no other business can use the same name in the state.*
Cons: Corporations are more complex than other business structures with more costly administrative fees, complex tax and legal requirements. In most states, there is a one time fee to register the Corporation with the state. There is also an annual fee to be paid each year to the state. It can be more expensive to have the taxes prepared each year versus a Sole Proprietorship or LLC.*
4. Partnership “A partnership is a single business where two or more people share ownership. Each partner contributes to all aspects of the business, including money, property, labor or skill. In return, each partner shares in the profits and losses of the business. There are three general types of partnership arrangements: General Partnerships, Limited Partnerships and Joint Ventures.”
Pros: When the Partnership business name is registered with the state, no other business can use the same name in the state. There are tax benefits with a Partnership, consult your accountant.
Cons: Because partnerships are made up of more than one person in the decision-making process, it may take longer to make decisions including branding. There is also a greater chance for disagreement with partners that can lead to business relationship problems. In most states, there is a one time fee to register the Partnership with the state. There is also an annual fee to be paid each year to the state. It is generally more expensive to have the taxes done by an outside source versus a Sole Proprietorship or LLC.*
5. Cooperative “A cooperative is a business or organization owned by and operated for the benefit of those using its services. Profits and earnings generated by the cooperative are distributed among the members, also known as user-owners. Cooperatives are common in the healthcare, retail, agriculture, art and restaurant industries.”
Pros: Because cooperatives are made up of more than one person the decision-making process has more input into making decisions and access to more potential financial assets for the business. Some people see shopping with a Cooperative as supporting local businesses. When the Cooperative business name is registered with the state, no other business can use the same name in the state.
Cons: Because cooperatives are made up of more than one person the decision-making process may take longer, including branding. There is also a greater chance for disagreement with partners that can lead to business relationship problems. In most states, there is a one time fee to register the Cooperative with the state. There is also an annual fee to be paid each year to the state. It is generally more expensive to have the taxes done by an outside source versus a Sole Proprietorship or LLC.*
6. Non-Profit “A nonprofit organization (NPO) is an organization that uses surplus revenues to achieve its goals rather than distributing them as profit or dividends. The goals of an PEO are always to change or improve a social issue.”
Pros: Non-profit has a favored tax status. If set up as a 501(c), people can donate money to the organization and receive a tax deduction. The non-profit brand can be seen more easily as making a difference in the community, particularly addressing social issues.
Cons: The founders of the non-profit do own the non-profit, but manage it. A board of directors oversee the operations of the non-profit, including its branding. Making decisions can take longer.*
*Note: Legal structure does not protect the company name outside the state or at the federal level. The only thing that protects the name at the federal level is a trademark or service mark.
Action Step: Select your legal structure: Sole Proprietorship, Limited Liability Company, Corporation, Partnership, Cooperative, or Non-profit. Next, decide if you will form the structure yourself or use an outside legal service.
Additional Resources
Forming Your Own Legal Structure
Choose Your Business Legal Structure
Are You Operating Under the Right-Business-Structure
Using a Online Legal Service
Using an Attorney
Additional Resources
Return to Protect Your Brand Return to Brand Library Return to Brand Yourself
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