Business Law and Company Structuring – Why are they important for business owners?

This article explains the basic elements of business law and the way companies are structured.

What is Business Law?

Business law pertains to anything that has to do with the transaction of goods and services. There are many components involved within business law. Everything from contracts and agreements to tax law to how companies are structured and run is part of business law. Creating quality contracts is important for business owners to minimize risk and get paid for services provided or goods delivered as mentioned in this article. Structuring a company correctly leads to long-term success, mitigates financial risk, and deserves thoughtful and purposeful planning.

Company Structuring

The structure of a company can be complicated. A company is a group of individuals who have decided to work together toward a common goal. Companies run like living organisms made up of different parts and take on a life of their own. How a company runs and is structured is an important part of business law. The company may be one person working as a sole proprietor or it could be made up of two partners who work together and also oversee the work of many other people.

Several questions are considered when deciding how to structure a company.

• Who is creating the goods and services?
• What responsibilities do they have?
• Who runs the company?
• Who is in charge of the operation?
• What responsibilities do they have?
• How should the business be treated?
• Does the business owner want to be personally responsible or should the business be treated as a separate entity?

The answers to these questions help to determine how a company should be structured to minimize financial risk and maximize profit. Businesses can be organized into sole proprietorships, LLCs, S Corps, and C Corps. We recommend consulting with an accountant to determine the tax laws and benefits of different company structures.

Minimizing Risk

Whether it is done through quality contracts or thoughtful company structuring, minimizing personal financial risk to individuals is one the most important parts of business law. At Business Legal Management we usually find, in most cases, that the best way to protect personal assets is to have the business become a corporation. 

Becoming a corporation instead of a sole proprietorship protects business owners from personal financial liability. If something goes wrong and a business owner does not have the proper legal structure, a customer could sue the business owner for their personal assets as well as the business assets. A corporation structure provides legal protection to a business owner’s personal assets.

Let’s use Tesla as an example of a company. How should the company be treated? It is a corporation and will be taxed as its own entity and is financially liable as an entity. Who runs the company? Elon Musk runs the company and is over all of the operations. He has a responsibility to shareholders, employees, and customers to run the company well. Who is creating the goods and services? The engineers, factory workers, mechanics, etc who are employed by the corporation. If something goes wrong with one of Tesla’s cars and a customer is injured they cannot sue Elon Musk, an engineer, or a factory worker. The customer would sue Tesla and the personal property of Elon Musk, the engineer, or the factory worker would be protected from the legal suit.   

There are many kinds of businesses. We specialize in business law at Business Legal Management and want to help you structure your company appropriately to minimize risk and help you do what you do best.

Are you wondering if your company is structured correctly? 

At Business Legal Management, we specialize in legal review and help companies of all sizes with business law and company structure.

DISCLAIMER- This website talks about various business topics and various legal situations. The statements given by the host or guests or author do not constitute legal advice given to any individual or business. The host and/or guests are giving their personal opinion based on their personal and professional experience. Examples given are given broadly as examples with names removed for privacy. If you do have questions about your business or legal situation, please reach out and email info@businesslegalmanagement.com to discus your business or legal situation.