The Structure of A Business
When you start a new company, the business structure will impact numerous decisions and responsibilities over the lifespan of your business. While the largest affect that business structure impacts is tax-related, the right architecture can help support the needs of a business over time. The type of structure you choose will also dictate the depth of filings required annually to run the business and stay compliant. While there are several different types of business structures a company can choose from, there are two primary concerns that offset each other: personal liability versus profitability. For example, while a sole proprietorship can be appealing to an individual because they can deduct business expenses from their personal tax return, it also means that they are personally liable for any debts their business may incur. On the flip side, a corporate allows the individuals who own a company protection from debts, it also means that owners of the company pay a double tax on any of the business’s earnings. Of course, a company’s business structure can be changed at a later time; for example if a limited partnership was looking to acquire another business, they may choose to become a corporation to better manage the larger company.
Business Structure And Impact
From the onset, business owners and entrepreneurs are faced with a host of pressing decisions that come with a wide variety of potential tax implications. In the midst of considering their products and services, finding locations and personnel, and securing funding and purchasing equipment, business leaders must decide upon the type of business structure that best suits their entity. This decision has a cascade of consequences.
Entity Management And Business Structure
The phrase “legal entity” and “subsidiary management” conjures many questions – even to general counsels who are have been working in entity management for some time. It feels like the embodiment of legalese – somehow both vague and specific, with multiple meanings and no meaning at all. Overall business structure can affect how you manage each of the entities in your control. The important takeaway is that any kind of company that has tax filings is a legal entity. This is an oversimplification in some ways, but finding a common thread will aid in the understanding of what a legal entity is.
Business Structure & Global Impact
One of the unique challenges in running a global business is that different districts, regions or countries can provide different benefits to a corporation. There are a host of reasons why companies might want to set up a headquarters or a subsidiary in one country over another such as taking advantage of low corporate tax rates to stable, pro-business economies centered in geographically advantageous locations. But with these benefits come a number of regulations and stipulations that one must navigate in order to keep your company compliant with local governance.