How To Choose a Legal Structure

Presumably, more often than not every individual or a group of them get into business for the medium to long haul. The previous generations of our ancestors took pride in not just doing business but creating institutions that exist in perpetuity, doing what they were meant to do when in business.

Over the last 2 centuries, various entities have evolved and as always, business, commerce and trade have taken the lead in the march of time and evolved legal structures to suit business arrangements and needs of the day for conducting organized business and trade. Now, you have various options available under laws of almost every legally organized country in the world. Let's see what the various entities available are under law.

  • Representative office, liaison office and project office - For short term or a specific task oriented business you can choose to establish these entities in certain countries.
  • Sole-proprietor concern - Maybe one of the easiest to establish; does not require any registrations and as the name suggests can be established by one person. Of course, it would be liable for registrations under taxation and other activity and business specific regulations.
  • Partnership - This is an entity that can be registered and it is advisable to do so. Here liability of the partnership is unlimited and personal assets could get attached in the event of liquidation. This entity can be set up by a minimum of two people. Day to administration, management, disclosure and reporting requirements are less than a limited liability company.

    These two entities are ideally suited for small and medium sized businesses where the liability will not be much and risk exposure to personal assets of the partners are lesser.

  • Limited liability partnership - This is a coming together of a general partner and a limited liability partner where the latter is not responsible for day to day functioning of the business and consequently not liable on a personal basis for losses arising from the business. But, the functioning of this entity is not as easy as it sounds. There are complicated disclosure and reporting requirements and it should be very clearly established that there is no misrepresentation on part of the partners to limit their liabilities. Quite expensive to maintain, parties are advised to examine costs versus benefits before choosing this type of entity.
  • Limited liability company - One of the most popular entities across the world, it is particularly preferred by corporate entities wanting to hold investments and ownerships in their names. This offers limitation of liability of its investors and most often it is to the extent of their unpaid dues on calls on shares. Of course, these entities require professional managements to run the business efficiently.
  • Non-profit entities  - These include trusts, non-profit corporations and cooperatives. Choose them if your activity is not meant to generate profit and the objective is more for development of society, mankind or any other social or developmental causes. It could also mean development of arts, literature, sports and the kind.

Depending on the size of your business and the nature of activity, choose any of the above entities. Of course, you can migrate from one type to another with necessary approvals and paper-work. As always, it is highly recommended to seek professional help before finalizing on the entity.


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