Accounting For Dummies®, 4th Edition

Chapter 8. Deciding the Legal Structure for a Business

In This Chapter

• Structuring the business to attract capital

• Taking stock of the corporation legal structure

• Partnering with others in business

• Looking out for Number One in a sole proprietorship

• Choosing a legal structure for income tax

The obvious reason for investing in a business rather than putting your hard-earned money in a safer type of investment is the potential for greater rewards. Note the word potential. As one of the partners or shareowners of a business, you're entitled to your fair share of the business's profit — but at the same time you're subject to the risk that the business could go down the tubes, taking your money with it.

Ignore the risks for a moment and look at just the rosy side of the picture: Suppose the doohickeys that your business sells become the hottest products of the year. Sales are booming, and you start looking at buying a five-bedroom mansion with an ocean view. Don't jump into that down payment just yet — you may not get as big a piece of the sales revenue pie as you're expecting. You may not see any of profit after all the claims on sales revenue are satisfied. And even if you do, the way the profit is divided among owners depends on the business's legal structure.

This chapter shows you how legal structure determines your share of the profit — and how changes beyond your control can make your share less valuable. It also explains how the legal structure determines whether the business as ...