What does Legal Structure Mean?

Jason (P) David
Last Updated: April 15, 2021
Date Published: April 14, 2021

Every new business is required to form a business entity by choosing a legal structure under which the company will operate.

The legal structure, also known as business ownership structure, will determine which income tax return form you have to file but more importantly, it determines how much tax you have to pay, and determines your risk exposure.

The most common legal structures for business are sole proprietorship, partnership, LLC (limited liability company), corporation, and s corporation, but there are other options as well.

Understanding each legal structure is important so that you can decide on the one that best fits your businesses goals as well as what is more beneficial to you as the business owners.

For example, many small business owners choose an LLC because it offers personal liability protection and is taxed as a pass-through entity.

Growing companies might choose a Corporation because they can have shareholders and issue stock.

To learn all about the different legal structures, visit our in-depth Guide to Legal Entities and Structures here.