The legal framework of a company is referred to as its business structure. Business structures are classified into four types:
Solitary proprietorship
Partnership
LLC
Corporation
The business structure you pick will influence how your company is governed, taxed, and more.
Table of Contents
Topics:
Meaning and Definition of Business Structure
Business Structure Types
Choosing an Organizational Structure
How to Begin a Business
FAQ about Business Structure
Business Structure Definition | Business Structure Meaning
A business structure is how a company is legally constituted. The sort of business structure may have an impact on how a company is governed, taxed, and more. As a result, selecting the proper structure for your company is one of the most crucial choices you will make.
Before making a decision, the first step is to educate yourself on the many company structure alternatives accessible to you, as well as the benefits and drawbacks of each.
Business Structure Types
There are various major kinds of company structures, some of which include additional structures. Some of the most frequent are as follows:
The sole proprietorship
Partnership
Limited Liability Company (LLC) (LLC)
Corporation
The sole proprietorship
A sole proprietorship is an unincorporated business operated by one person. A lone proprietor pays taxes in their own name and is individually accountable for any debts or legal proceedings brought against the company.
Partnership
A partnership is an unincorporated business owned by more than one person. A general partnership is the most common kind of partnership. A general partnership pays taxes in the names of the partners, and the partners are personally accountable for any actions taken against the firm.
There are, however, various forms of partnerships. A limited partnership (LP) permits one or more partners to act as passive investors rather than managing the business directly. Personal responsibility is limited for limited partners. A limited liability partnership (LLP) shields all partners from personal responsibility in some way.
LLC
A limited liability company (LLC) is a kind of business organisation in the United States that combines the personal liability protection of a corporation with the pass-through taxes of a sole proprietorship or partnership.
An LLC with one owner is known as a single-member LLC, while an LLC with several owners is known as a multi-member LLC. A professional limited liability corporation (PLLC) structure is also available for licenced professionals such as lawyers, architects, physicians, and engineers.
Corporation
A corporation is a legally distinct legal entity from its owners, known as shareholders, and governed by a board of directors. Corporations provide limited liability protection, with the assets of the owners safeguarded in the case of a court action or a commercial debt.
Corporations are classified into numerous types:
C Corporation (C Corp): C corporations are distinct corporate entities that are held by shareholders.
S Corporation (S Corp): An S corporation is a tax categorization for a firm, not a corporate structure in and of itself. C corporations and limited liability companies (LLCs) may both elect to be taxed as S corporations.
Nonprofit Company: A nonprofit corporation exists to help the general public or a specific organisation rather than to enrich its owners. Charitable, religious, and political groups are examples of nonprofits.
A benefit corporation (B Corp) is a for-profit business with a mission to help the community or the environment.
Choosing an Organizational Structure
One of the most crucial choices you will make for your company is the structure. The optimum structure is determined by your company’s specific demands and features. When making this selection, there are various factors to consider.
What are your profit and risk tolerance levels?
Is it necessary to be investor-friendly?
Is it worth the work and price to maintain a sophisticated corporate structure?
Answering these questions will assist you in determining if you need personal responsibility protection, which tax structure is appropriate for you, and, ultimately, which company structure is best.
How to Begin a Business
After you’ve studied about the benefits and drawbacks of several business structures and determined which one is best for you, you’ll need to create and establish the company. Whether you incorporate a corporation, an LLC, or another structure, there are a few additional steps to perform before you may offer your goods or services.
These are covered in more depth in our state-by-state How to Start a Business guides, but here is a short summary of the fundamental processes after creating your business:
Fill out a tax return
Establish corporate banking and credit accounts.
Create an accounting system.
Obtain all necessary permissions and licences.
Obtain insurance.
Create a web presence
FAQ about Business Structure
What exactly is a company structure?
A business structure describes how a company is structured. The sort of business structure may have an impact on how a company is governed, taxed, and more.
What are the many kinds of company structures?
Sole proprietorship, partnership, LLC, and corporation are some of the most prevalent types of company formations.
Which business structure is the most effective?
The ideal structure for your company is determined by its specific circumstances and demands.
How should I go about picking a business structure?
You should answer the following questions:
What are your profit and risk tolerance levels?
Is it necessary to be investor-friendly?
Is it worth the work and price to maintain a sophisticated corporate structure?