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  • Dwight Brisendine

Business Organization Structure Alternatives

Selecting a business organization structure is a complex matter. Expert advice from qualified legal and tax advisors is important in making this important decision. This article is intended to give the business owner a basic knowledge of some fundamental features of certain common organizational structures, helping the owner to better work with his or her advisors.


The business is not considered to be a separate entity from the owner(s). Legal Liability: The business assets and the personal assets of the owner(s) are not considered to be separate from each other. That means that in the event of legal action against the business, the owner(s) personal assets are “in play”. Further, a legal action against the business can be considered a legal action against the owner(s) as an individual(s). Proprietorships are generally referred to as “John Smith d.b.a. XYZ Company” (d.b.a. is shorthand for “doing business as”) Organization steps: There are no special legal filings, other than necessary business licensing, required to set up a proprietorship. This structure is generally the least expensive way for a business to be set up. Taxation: Profits or losses from such businesses “flow through” to the owner(s) personal federal and state income tax return. The business does not file a separate tax return. The business’ revenues and expenses for each year are reported on a Schedule C, which becomes part of the personal income tax filings by the owner(s).

Limited Liability Company (“LLC”)

This type of business is considered to be legally separate from the owner(s). Legal Liability: The business assets are considered to be separate from the owner(s) personal assets. A legal action against the LLC is not an action against the owner(s). Organization steps: A formal legal document (Articles of Organization) is prepared and filed with the Probate Judge. In addition, an Operating Agreement should be prepared to show the way in which the LLC will be managed. These documents can range dramatically in complexity and cost, depending upon the nature of the business, ownership, and other such factors. An owner of all, or part, of an LLC is called a “Member”. A Member of an LLC is prohibited from drawing a formal paycheck from the LLC.

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