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What Type Of Business Should I Start? A Legal Perspective On Business

Have you ever dreamed of starting a business but had to back off because of fear, a lack of knowledge, risks, or possible legal consequences?

You were probably confused about which type of business structure to adapt in the first place.

Many have trodden the same path before, only to realize they would’ve cleared their confusion if they consulted a business lawyer.

In this article, I’ll guide you through the various types of business structures and what they’re for. I’ll also discuss what factors you need to look into when choosing lawyers to work with.

Let’s begin turning your business idea into reality.

Defining Different Business Structures

Different business structures have various benefits and legal consequences when things go rough. Most businesses actually begin with one form and evolve to another as they grow. Essentially, your business could start as a Sole Proprietorship and later converted into a Limited Liability Company (LLC).

What’s important at the moment is to understand the requirements for each type and learn their legal consequences.

Sole Proprietorship

A sole proprietorship is the simplest type of business ownership. You may not have realized this before, but you may already be running one. If you have been fixing people’s fences, doing painting jobs, or even writing articles for someone and got paid, that was it. You are essentially a sole proprietor.

Unlike LLCs and corporations, you don’t have to register yourself with the state. Still, you need to report your profit and losses and pay taxes under your name.

Because you own the business personally, you will also be personally liable. That means if your business got into debt and had to face legal issues, you would have to answer these issues personally. It even means having no protection from creditors in case they choose to tap into your personal assets to cover your business debts.

General Partnership

A general partnership is a business partnership between two or more people. As this already involves a person apart from yourself, it’s best to form a partnership agreement. This agreement should contain the partners’ duties and responsibilities, as well as your financial arrangements. It means you could arrange with your partners how you share your business profits.

As with sole proprietorships, general partnerships do not require formal registration. Still, they will have to report their profit and losses on their personal tax returns.

Because of its relative ease, forming a general partnership looks attractive to many aspiring entrepreneurs. However, a partnership’s biggest risk is that it allows each partner to make decisions on behalf of the whole business while making everyone else responsible for that decision.

Each partner will also be responsible for business liabilities. General partnerships do not have the debt protection that corporations and LLCs enjoy. Moreover, when one partner leaves, the entire partnership is usually destroyed. Lastly, general partnerships do not enjoy the same tax benefits as corporations and LLCs.


Unlike the first two business types, a corporation is a separate legal entity from its owners. A corporation has two primary characteristics: limited liability and infinite life.

This “limited liability” feature means that if you own a corporation, it can shield you from the liabilities of your business. For example, you will not usually be personally sued for a bad batch of products your company has sold. If your corporation goes bankrupt, your personal assets will be kept safe. You will only lose the money that you put into your company.

The “infinite life” feature means the corporation lives as long as there are shareholders. Shareholders own the corporation. Although some may quit or die in the long run, others can buy shares and fill their place.

In the United States, companies have two tax options: C and S corporations designation. C-corps are subject to double taxation whereas s-corps are not. However, s-corps have certain requirements such all owners having to be individuals, the corporation is owned by less than 100 shareholders, and no shareholder can be a non-resident alien.

Limited Liability Company (LLCs)

LLCs have become a very popular business structure in the US. Business people have been drawn to an LLC’s long list of advantages, as it offers the best parts of all the other corporate forms.

It’s relatively easy to form an LLC. Also, members of an LLC manage the company. As a default, profits and losses are shared in proportion to ownership but the beautiful thing about LLCs is that they are very flexible and can be designed any way the owners want when drafting an operating agreement.

Taxation for LLCs tends to be more flexible. For example, single-member LLCs are treated as sole proprietors, meaning profits are reported on the owner’s tax returns. LLCs can also be taxed as a partnership. In either case, the LLC can also choose to be taxed an S-corp. The key to benefiting from this flexibility is to set up the LLC correctly with the help of legal counsel and a business accountant

When Is An Attorney Needed?

If you’re planning to start a sole proprietorship, you probably won’t need an attorney’s help, but it may be worth at least getting advice and understanding of your risks and liabilities. Otherwise, a lawyer can help you go through the following.

  • Navigating through many forms and legal documents
  • Advising as to the right type of business formation and creating a proper business structure and agreements with business partners
  • Taking overall legal processes and letting you focus on aspects that keep your business running
  • Supporting you with specific tasks such as potential legal structures, trademarking, reviewing lease documents, and preparing incorporation forms
  • Making sure corporate documents are properly drafted in order to avoid litigation in the future
  • Advising you about any industry-specific risks and obligations

Different Types Of Lawyers For Your Startup Business

Lawyers have different specialties. You may need to work with more than one, depending on your type of business.

Employment Lawyer

If you’re planning to hire employees, an employment attorney can help you establish employment policies and make sure they comply with applicable laws. Employment lawyers also assist in drafting employment contracts. They support you in addressing legal disputes on matters like wages, employee discrimination and harassment, hours of work, and layoffs.

Contract Lawyer

Contract lawyers focus their practice on negotiating business contracts, handling drafts and revisions, and executing legally enforceable agreements. They can present you with several options when making business decisions and help you avoid costly litigation.

Tax Lawyer

You may need a tax lawyer’s help if you want to ensure you’re filing your taxes properly and without errors. Learning the appropriate tax codes and whatnot can be messy if you choose to do it yourself. It can be too complicated with bigger businesses, and you may face issues with the IRS or Internal Revenue Service if you proceed without legal advice.

Tax attorneys can help you legally take advantage of tax deductions, credits, and exemptions. If tax disputes arise, tax lawyers can also represent you and your business.

Intellectual Property Lawyer

If you’re starting a company that will have patents or a trademark, it’s advisable to work with an Intellectual Property (IP) lawyer. IP attorneys assist in preparing documents needed to file such patents or trademarks. They also provide counsel on establishing and protecting your intellectual capital. In case of IP violations and lawsuits, an IP lawyer can also represent you in court.

Business Lawyer

Hiring a business lawyer can help you establish your business in legal order right at the outset. These lawyers assist in choosing the appropriate business structure and making sure you’re operating within federal and state laws.

Many business lawyers already provide services on establishing employment policies, drafting contracts, and protecting your intellectual property. Most successful entrepreneurs have a business lawyer on retainer. If you follow the same arrangement, your business attorney can help you at every step, especially when you’re ready to restructure or expand your business.

How To Choose The Best Lawyer For Your Business

It’s not enough to hire any business lawyer just for the sake of having one. Consider the following tips when looking to work with a business attorney.

1. Look For An Attorney That Identifies With Your Vision

You’ll rest assured that your company is in good hands if your lawyer shares your vision. Your discussions will run smoother because the lawyer already knows your needs from the beginning and can grasp any concepts that are unique to your business model. Such attorneys will have your best interest in mind.

2. Consult And Listen

Most attorneys will set up an initial consultation. This stage is crucial when choosing an ideal attorney for your business. Present your unique situation, learn the lawyer’s expertise, and listen closely to see if you’re really fit to work together.

Remember, the best business lawyers usually listen more than talk during your first meeting. Your initial discussion could be the start of a fruitful relationship with your business and your lawyer.

3. Build A Working Relationship

Once you’ve settled on a lawyer for your business, build a relationship with her over time. Make sure to reach out for any counsel or guidance on substantive and non-substantive matters alike. It is in your best interest to be transparent on all business matters with your lawyer. Also, getting legal advice before making a decision could save you thousands of dollars of costly dispute and litigation rather than coming after damage has been done.

A Legal Perspective On Business

Starting or scaling a business doesn’t need to be scary. In most cases, one only needs to partner with the ideal business lawyer to make the move a success.

If you wish to test the waters on your business idea and minimize risks at the same time, an attorney can surely help. Many attorneys have already worked with successful business owners who had once been in your shoes.

Shakfeh Law offers real-world solutions for your legal problems. Contact us today or call (630) 517-5529.

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