This week we are excited to announce a three-part blog series on one of the toughest decisions when starting a business - which organizational structure to choose! Specifically, we are going to hone in on three general considerations that every business owner needs to think about prior to selecting the organizational structure of their entity. Today, we are going to focus on the management structure of the business.
The management structure of the business is one of the most important considerations when selecting an organizational structure for a business entity. Whether it is small business or a business with investors and other external financial partners, the desired management structure will play a big role in selecting a specific business entity.
For example, a corporation is a distinct legal entity owned by the shareholders and controlled by the board of directors, which are elected by the shareholders. If a corporation has elected to be treated as an S-Corporation for tax purposes, the entity will be treated legally as a corporation but will be subject to certain limitations placed on the management structure that would distinguish it from a normal C-Corporation. In part, to be eligible to elect S-Corporation status, the entity must have no more than one hundred shareholders, all shareholders must be individuals, all shareholders must be U.S. citizens, and the corporation may have only one class of stock. As you can see, it is clear that these requirements may drastically affect whether a business entity is approrpriate for certain management structures.
As always, to discuss the legal and tax characteristics of each type of business entity, to determine which structure will work best for your specific business objectives, and to receive a full and complete business formation analysis, contact an experienced business attorney at The Loftin Firm.