The structure of a business determines a lot about the business, from the way it is run to the way taxes are paid to the actual amount of control the owner has over the business. Thus, it is important to critically consider the different business structures, especially as regards how they are regulated in a specific location, and choose the most suitable one before starting a business.
Basically, the forms of business include corporations where the business is owned by a large number of persons known as shareholders who could also be employees of the organization and multiple-owner business where a number of persons who could be partners and not employees of the business own the business. Single-owner businesses are other basic forms of businesses where the business has a single owner who makes all decisions and bears all risks.
Based on these basic forms of businesses, there are several business structures. The available business structures include the following.
A sole proprietorship business is a business that has a single owner. The owner of the business is usually involved in its daily running and could be an employee of the business. A sole proprietorship is not a separate legal entity from the owner of the business, and the owner bears the full liability of the business.
A partnership is a multiple-owner business that is owned by partners who could share the liability of the business. Partners could be general partners that are employees of the organization and involved in its daily running and limited partnership who only have a financial investment in the company without being involved in its daily running.
Partnership business structure can be subdivided into a general partnership and limited partnership. In general partnerships, all partners are involved in the daily running of the organization. In limited partnerships, partners may be involved in the running of the business.
A corporation is a business structure where the business has a large number of owners that become owners by buying the shares of the organization. The owners of corporations can also be employees of the organization. However, the business is usually a separate legal entity from the owners and pays its taxes, while owners pay personal taxes from their proceeds from the business.
Limited Liability Company (LLC)
The structure of a limited liability company allows the business to enjoy the benefits of a corporation with features of a partnership or sole proprietorship, based on whether it is a single-owner LLC or multiple-owner LLC. LLCs are also known to be easy to establish, requiring registering of Articles of Incorporation or any application process.
Subchapter S Corporation (S Corporations)
Businesses created under this structure also get to enjoy features of corporations such as the limited liability, as the business is a separate entity from its owners. However, the profits and loss of these businesses are usually shared amongst partners.
Partners of businesses registered as S corporations are known as shareholders, just as is applicable for corporations. However, S corporations do not enjoy the full benefits of corporations.