A business structure is a formal method of managing a business. An organizational structure identifies how various activities including supervision, task allocation, budgeting, and planning are directed toward the success of company goals. It lays down rules and instructions for activities conducted by an organization. The process of developing a business structure is usually gradual, taking into consideration many factors such as the nature of the business, the degree of involvement of the partners, the size and financial resources available to the partners, and other specific considerations.
As a manager, you will be required to make important decisions about strategic issues. Therefore, you need to know the basic concepts in choosing the best structure type that suits your company. It is a question of making critical decisions. For example, you have to decide between a sole proprietor or partnership.
You should understand that a sole proprietor is a limited liability company. It is a simple arrangement in which one individual owns the assets and controls the business structure. It allows only one individual to manage the day-to-day operations and can enjoy the benefits of working alone. On the other hand, in a partnership, two individuals share in the assets of the business and benefit from its profits.
Limited liability companies are another common choice among businesses in choosing a business structure. In a limited liability company, the owners are considered joint owners of the company. This means that they are responsible for managing and controlling the company jointly. However, unlike corporations, they are not required to pay corporate taxes.
A corporation is a type of business structure that separates the management and the ownership of the same assets. Like a sole proprietorship, it can be established by a written contract. It may come with limited liability, in which the corporation is obliged to reimburse investors for their losses in case there are lawsuits filed against it. The tax on the profits of the corporation also has a fixed rate.
A partnership is a business structure that refers to a group of people who have similar business interests and share in the profits. Partnerships may not incorporate. If there is limited liability, the partners share in the liabilities of the venture and if there is no limited liability clause, the partnership will need to be registered as a partnership.
Different types of business structures offer different advantages to each partner. A general partnership will mean that partners are both liable for the costs of the venture and its profits. If one partner dies, the remaining partners will still be liable for the debts of the business. They are also responsible for providing the necessary resources, such as employees and inventory. However, the partners are treated as general partners, with the advantage of having lower taxation deductions.
The business structure has a lot to do with a business’s success or failure. Identifying and establishing a business structure is the first step in creating a business. Once established, a business structure ensures that all of a company’s major activities are managed and performed legally, ensuring that a company’s assets are protected and that it can function on a day-to-day basis.
There are several options when choosing a business structure. There are two basic types of business structures – a partnership or a sole proprietorship. Partnerships are formed by two or more people who are jointly responsible for the ownership, operation, and maintenance of a business. When forming a partnership, one person is generally a general partner and others are shareholders. With a sole proprietorship, the owner is the only one who owns the property. This option is recommended for start-ups, as it provides financial stability.
A Limited Liability Company is another popular option for business structures, especially for those who are new to business or for businesses that expect growth. When using a Limited Liability Company, or LLC, all of the liability issues are resolved through a board of directors. All of the partners are liable for their acts and the company’s debts. Using a Limited Liability Company can be a good choice for start-ups because it provides a simplified method of holding a business meeting compared to a partnership. However, limited liability partnerships can be a good choice for long-term businesses that expect growth because it allows the partners to grow independently and does not have a drastic effect on equity.
Starting a business is an exciting time. Choosing the right business structure is important because it will affect your ability to run the business and manage it effectively. Both partnerships and limited liability companies are common choices for many entrepreneurs. By researching each option, you’ll be able to choose the best legal structure for you and your business.
