Question

Which legal entity provides the least flexible legal arrangement for owners?

Multiple Choice

• Corporation.

• LLC.

• Partnership.

• Sole proprietorship.

Answer 1

The answer is Option 1 - Corporation.

The first consideration in setting up a business is the choice of type of entity in which to conduct the business - whether to register as a Corporation, LLC, Partnership or to start as a sole-propreitorship firm. In this regard, people often tend to choose the type of entity based on its flexibility of legal arrangement.

In corporations, to sustain the liability shield it provides to its investors, many legal formalities must be taken care of, e.g., a corporate charter, bylaws, and a board of directors, as well as compliance with regulatory reporting requirements. Compliance with these formalities often comes with significant legal costs.
Since corporations are registered under a prescribed Act (of the country in which it is registered) , it has to comply with all legal and statutory requirements of the Act along with other business laws. Public Corporations have even more regulations to follow with. As a corporation is a separate legal entity and its rights, rules and duties are designed and followed as per the legal requirements, it iprovides the least flexible legal arrangement among these.

LLCs provide flexibility, they are often simple to create and maintain and they have scalability. LLC offers more flexibility than either a partnership or a corporation on the tax front. Specifically, by way of a simple election, an LLC can be treated for tax purposes as a partnership or as a corporation. Partnership and sole-propreitorship too provides members and partners with a great deal of flexibility. In contrast, corporate governance rules limit the flexibility of the shareholders.