Do you currently run a business? Or are you thinking about setting up a new business?
If you do, you’ll need to know what type of business structure to adopt and how to organize it. The structure shapes and represents the operation of your business. It boosts SMART goals and provides scope for operation and growth.
It’s normal to feel confused about business structures as there are so many to choose from. Business owners don’t have enough time to test them all out.
Not sure what to do? Read on to know about 5 types of business structures that you can consider for your company.
1. Sole Proprietorships
Sole proprietorships are businesses owned and operated by one person. This business organizational structure offers several advantages. These include simplicity, flexibility, and control.
They are also a relatively easy and inexpensive option for a business start-up. Keep in mind though that, sole proprietorships have some disadvantages.
Examples include unlimited liability and the difficulty of raising capital.
2. Partnerships
A partnership is a business structure in which two or more people operate a business together. Partnerships can get formed by an agreement between two or more people who want to carry on a business together.
The partners in a partnership share the profits and losses of the business. Each partner has an equal say in the business, and each partner is liable for the debts of the business.
3. Limited Liability Companies (LLCs)
An LLC combines the sole proprietorship with the limited liability of a corporation. This means that it is not considered a corporation. It provides limited liability to its owners in many jurisdictions.
LLCs do not need to get organized for profit. But, many small businesses choose LLC formation because it offers personal asset protection. This is especially in the event the business gets sued.
4. Corporations
A corporation is a business structure owned by shareholders. It is then managed by a board of directors. The shareholders elect the board of directors, who then appoint the officers of the corporation.
The officers manage the day-to-day operations of the corporation. The shareholders are not liable for the debts of the corporation. The corporation is a separate legal entity from its shareholders.
5. Cooperative
A cooperative business is a company owned and operated by a group of individuals who share a common goal. Each member of the cooperative has an equal say in the business. Each member also makes decisions about the business.
All members of the cooperative need to contribute financially to the business. This business model allows individuals to pool their resources to create a business. This business structure is often used in rural areas where traditional business models are not viable.
Understanding the Types of Business Structures
It is important to understand the types of business structure because it can help you determine the best way to run your business. It can also help you understand the tax implications of each type of business. With this in mind, be sure to choose the right structure for your business.
Want to learn more about forming a business? Check out the rest of our site for more info!
