What Is Business Organization Law?

Business organization law refers to how owners may legally form a business under state laws. Each business organization brings a specific set of tax, management, and liability issues. Choosing the right type of organization for your business is essential. Attorneys with expertise in business organization law can help clients choose the best form that gives clients the desired benefits.

A business attorney can provide small business owners with the details they need on business formation and state and local regulations before they start. This article reviews what businesses and startups should know about hiring a business lawyer.

Types of Business Structures

There are many reasons a business needs legal services. Startup companies need legal help deciding on a business structure. The nature of your business may have some impact, but the direction you want to go is also a factor.

Partnership

A partnership consists of two or more individuals as co-owners. Without a partnership agreement, courts assume partnerships are general partnerships where all partners share equally. Legal problems arise when the partners have not contributed equally to the business.

A business attorney can explain other partnership types, such as:

• Limited partnerships, in which one partner provides capital and has no daily management ability. This partner is sometimes called a silent partner.
• Limited liability partnerships, or LLPs, protect the partners’ personal assets if anyone sues the company. There are legal requirements for filing an LLP to get this protection.

Limited Liability Companies (LLC)

A limited liability company or LLC combines elements of a partnership or sole proprietorship and a corporation. It protects your personal assets and liability in case of a lawsuit but has fewer legal needs than a corporation. LLCs offer tax benefits for small businesses that might otherwise not qualify. They are helpful for small professional groups.

Corporations

Corporations offer owners the greatest protection in their business dealings. They also have the most paperwork and filing requirements. Incorporation has some tax benefits and allows the company to raise money by selling stock in the company. Once a successful business reaches a certain size, incorporation should be part of its business plan.

How Do I Choose the Right Business Structure?

When you are ready to plan your new business, these are the legal questions to ask your business attorney:

• What are the tax benefits of each business structure?
• Which one offers the most flexibility for my business type?
• Which one gives me the most liability protection?

You should also discuss how each option impacts your vision for long‑term growth. If you have plans to scale your business in the future, you’ll want to be sure your business structure supports that goal. 

A lawyer can also explain the risks of operating as a sole proprietor, when an LLC or corporation offers better protection, and how formal agreements can prevent disputes between business partners. 

When To Consult a Business Lawyer

As you start, run, and grow your business, there are several legal issues you may encounter. Most—if not all—of these matters benefit from professional legal help.

When you look for a business lawyer, consider what your business needs from an attorney. Business formation involves more than filing your business name with the secretary of state’s office. The right lawyer can help you with most business issues or give you a referral to someone who can help.

If your business is moving from online to brick-and-mortar, look for someone with experience in leases and real estate. Ask if they have negotiated commercial leases and know what to look for in building contracts.

If your business is expanding or taking on new vendors, ask about their knowledge in contract drafting. Some attorneys specialize in the UCC contract model and commercial law.

Get legal advice when it’s time to sell your business, close it down, or buy out a partner. Corporate law has strict rules about how business owners may sell or divest other owners. Even small businesses can be liable for costs and legal fees if they shut down without informing the state.

You can register your business outside your home state. Many LLCs and corporations register in other states for tax purposes since some states, notably Delaware, are friendlier to corporations than others. Registering outside your home state has many legal pitfalls. Talk to a corporate lawyer to discuss the pros and cons of registering outside your state.

Regardless of where you are in your business planning process, getting the right legal guidance is key. This is true whether you’re planning your startup, operating day-to-day, or scaling your business into new markets. A business organization lawyer is a reliable way to ensure your business is legally sound and built to last.

How To Find a Business Organizations Lawyer Near You

Because state law is relevant, your attorney should be licensed in the state where your business operates. FindLaw’s directory of business organizations attorneys can get you started. Enter your city or ZIP code for a list of qualified legal advisors in your area. Your search results will also show ratings and contact information.

Business Organization Terms To Know

The following terms are often used when discussing starting or operating a business.

• C Corporation: A traditional corporation. C-corps pay corporate income taxes, and shareholders pay taxes on dividends. Double taxation is one reason small businesses avoid incorporating.
• Close Corporation: A corporation owned by very few individuals. Close corporations do not have public stock.
• Dissolution: Terminating a business. The owners can dissolve a business voluntarily, or a court may order dissolution for legal reasons.
• Limited Liability Company (LLC): A business entity made up of one or more owners. The LLC structure protects the owners from personal liability for the company’s actions.
• Partnership: An association of two or more persons or entities that conduct business as co-owners. In limited partnerships, one partner provides capital but has no say in business operations.
• Public Corporation: A business whose stocks are publicly traded. Public corporations have legal requirements, such as initial stock offerings and how often shareholders may sell them.
• S Corporation: A type of corporation with a limited number of shareholders (fewer than 100). The shareholders pay the business tax, a method known as pass-through taxation.
• Sole Proprietorship: A business owned and operated by a single person who is solely liable for the business’s obligations and liabilities
• Piercing the Corporate Veil: A judicial act of imposing personal liability on the owners, shareholders, or officers of a corporation for the corporation’s wrongful acts

For more legal definitions, see FindLaw’s Glossary: Starting a Business.

Related Practice Areas

• Business Law
• Taxation Law
• Franchising
• Banking and Finance Law
• Employment Law