Tuesday, December 19, 2006

Legal Structures for Businesses

There are four different legal structures businesses can take. They are sole proprietorship, partnership, corporation and Limited Liability Company. Most new businesses start out as sole proprietorships like QUADRE did in 1998. Each of these types have benefits and disadvantages. However, they can best be broken down in terms of ownership and liability.

In the eyes of the law, an individual and their sole proprietorship are one and the same. The individual has total ownership and total liability. Should they or their business go into debt or be sued, they could lose everything. In contrast, a partnership divides the ownership between 2 or more people. Again, business debts and lawsuits brought against the business become the obligation of the partners. A Limited Liability Company is similar to the partnership but has the limited liability of a corporation. Finally, a corporation is a legal entity unto itself meaning that the business is legally separate from its owners.

In QUADRE's case-as a not-for-profit 501(c)3 corporation-our owners are the general public. Our board of directors serves the interests of the general public by making sure the corporation is financially responsible and by hiring/replacing the executive director when necessary. That would be me. Don't get any crazy ideas, though.

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