Legal Business Structures

June 6, 2023  •  Author: admin

At Cumorah Academy, students are provided with the tools and knowledge to construct solid legal business structures for their companies. This process involves aligning the structure with the company’s mission, vision, and values. Several important steps are involved in this process, including choosing a suitable company name, crafting a mission statement, understanding the target market, and specifying the products or services offered.

Types of Legal Business Structures

There are four main options for legal business structures, which may have different names depending on the country. However, they share common principles. These structures are as follows:

1. Sole Proprietorship

Firstly, a sole proprietorship is the simplest and most straightforward business structure. It requires minimal legal formalities and paperwork.

Ownership and Control

As the sole proprietor, you have complete ownership and control over the business. You make all decisions without the need for consultation or consensus.

Profits and Losses

You retain all the profits generated by the business. However, you are also personally responsible for any losses, debts, or legal obligations incurred by the company.


The income generated by the business is taxed as personal income on the proprietor’s individual tax return.


Also, one significant drawback is that the sole proprietor has unlimited personal liability. This means personal assets can be used to settle business debts or legal claims against the company.

2. Partnership


On another hand, partnerships involve two or more individuals pooling their resources, skills, and expertise to operate a business together.

Types of Partnerships

General partnerships are formed when all partners equally share responsibilities, liabilities, and profits. Limited partnerships consist of general partners who actively manage the business and have unlimited liability, and limited partners who contribute capital but have limited liability and minimal involvement in business operations.

Partnership Agreement

A well-drafted partnership agreement is essential. It outlines the roles, responsibilities, profit-sharing arrangements, decision-making processes, and procedures for dispute resolution among partners.


In a general partnership, partners are jointly and severally liable for the partnership’s debts and legal obligations. This means that each partner can be held personally responsible for the entire amount owed by the partnership.


Partnerships generally do not pay income taxes. Instead, the profits and losses “pass-through” the business and are reported on each partner’s individual tax return.

3. Limited Liability Company (LLC)

Limited Liability Protection

An LLC provides personal liability protection to its owners (members). Members are typically not personally responsible for the company’s debts and legal obligations beyond their investment in the business.


LLCs offer flexibility in management and operations. So, they can be managed either by the members themselves or by appointed managers.

Pass-through Taxation

Like partnerships, LLCs enjoy pass-through taxation. Profits and losses flow through to the members’ individual tax returns, avoiding double taxation.

Legal Formalities

While LLCs have fewer formalities compared to corporations, they still require filing articles of organization and an operating agreement that outlines the company’s structure and operating procedures.

Credibility and Perpetual Existence

Choosing an LLC structure can enhance a company’s credibility and provide a sense of permanence since it can continue to exist even if one or more members leave or pass away.

4. Corporation

Separate Legal Entity

Another example is a corporation. It is a distinct legal entity separate from its shareholders. It has its own rights, liabilities, and obligations.

Limited Liability

Secondly, shareholders’ personal assets are generally protected from the company’s debts and legal obligations. Shareholders are only liable for their investment in the corporation.

Board of Directors

Corporations are managed by a board of directors elected by the shareholders. The board oversees the company’s operations, appoints officers, and makes strategic decisions.

Capital Formation

Also, corporations can issue shares of stock, which allows them to raise capital from investors. This makes it an attractive option for companies seeking significant growth and investment.

Complex Formalities

And, establishing a corporation involves more complex legal formalities, such as filing articles of incorporation, adopting bylaws, holding regular shareholder and board meetings, and maintaining proper corporate records.


Moreover, corporations are subject to double taxation since they pay taxes on their profits, and shareholders also pay taxes on dividends received.


At Cumorah Academy, students gain valuable insights into establishing and operating successful businesses by understanding the various legal business structures. By aligning the legal structure with the company’s mission, vision, and values, students have the knowledge and skills necessary to create a solid foundation for their businesses. This education prepares them to navigate the dynamic global landscape and build thriving enterprises.