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Why Choosing a Type of Legal Formation Matters for a Business Plan

Posted on June 7, 2013  |  Written by cynthia@enloop.com

Starting a business begins with deciding on the type of legal formation. This is an important decision that greatly affects how your company is taxed and managed. Enloop's free business plan writing app automatically includes your specified legal formation in your business plan text. Here's what you need to know and how your legal formation is included in your business plan...

What Type of Legal Formation Should You Choose for a Company?

If you've not yet legally formed the business, or you're not sure an existing company is formed correctly, consulting with a business attorney and accountant is the best way to determine how the company should be formed. For understanding each form, we recommend doing a search on Wikipedia for each type (such as 'LLC') and reading the entries. You can also familiarize yourself with the options, paperwork process and costs for incorporating your business in your state by searching the Internet for your state's corporation division home page and reading their guidelines.

There are several issues you'll need to consider in deciding the company's legal formation:

  • Weighing the risk level of the business
  • Understanding your personal liability for debts and legal actions
  • Knowing the types of legal formations available in your state
  • Determining the costs associated with each type of formation
  • Planning for the owner's and the businesses income tax issues
  • Evaluating each owner’s personal investment situation

 

In the United States, the types of formations that are available vary from state-to-state. Here are the most common forms:

  • Sole proprietorship
  • Limited Liability Company (LLC)
  • Corporation ("C Corporation" or "Subchapter S Corporation")
  • Partnership
  • NonProfit

 

How to Set Your Legal Formation in the Enloop Business Plan Writing app

In Enloop's free business plan writing app, you'll be asked to select the type of legal formation for your business. A 'Legal Formation' means how the company is actually setup up within the state that it operates. If your company operates outside of the United States, you can select an equivalent form or select 'None'.Within the Enloop app, you can set your type of Business Formation in the Business Idea section, within the Business Information subsection.

 

 

Choosing a Legal Formation

Using the dropdown menu, select the type of formation that you intend to use or that is currently used by the company. If you don't know what type of formation your company will use yet, then select 'None'. You can always edit your entry in the future.

The dropdown menu provides you with these choices...

 

How Enloop Includes the Legal Formation Description in a Business Plan

The Enloop app collects this information and then includes it in the AutoWrite™ feature that automatically generates and manages text for each section of your business plan (in this case, the Business Idea section). This feature is available to our Advanced members. You can click here to scroll through screencaptures of all the customized AutoWrite™ text that's generated and managed in each section of your business plan.

The Legal Formation information is also displayed on a one-page cover sheet breakdown of the company that's included (and can be excluded) with each business plan.

 

Business Plans for Non-Profit Organizations

You'll notice that there is no selection for 'Non-Profits' in the Legal Formation dropdown menu. These types of entities traditionally create Strategic Plans that emphasize their organization's mission rather than focusing on revenues and profitability. The Enloop business plan writing app is not designed to be used by not-for-profit organizations. Although, as many nonprofits struggle financially due to a lack of organized financial planning, it's never a bad idea to create a traditional business plan and set the tax percentage to '0%'. Used in this way, Enloop's free business plan app provides a good framework to create and manage your nonprofit's financial forecast...even if some of the concepts and metrics aren't relevent.