When setting up a business, it’s important to select the right business structure that would suit you best. There is no best business structure for any businesses since each of them have their pros and cons and the result will depend on a lot of other factors. The next important thing then is to know what the types of business structures are and knowing what they can do for your business.
Read on to learn more about business structures and pick one that’s best for you:
This is the most basic, simplest form of business structure. Here, you own all the rights to the company, managerial decisions and operations, but also you are solely responsible for its assets and all its liabilities. Normally, this is applicable for small retail stores, tradesman, and other business small enough to be owned and (usually) operated by an individual. However, with this type, you cannot get funds from other parties or adding and sharing ownership.
In this type of business structure, you are doing business like a sole proprietorship, but there are more people involved. You and your partners come together and share resources, whether financial or professional, and do business. Again, you and your partners have the power over management and operations, and you will share the profits and losses of the company.
A company with this business structure is controlled by a group of people who owns shares in the company’s ownership. The shareholders decide who would run the business and how it should be done, and then they would get profits based on the size of their shares. This structure can be beneficial in terms of getting funds since it would be easy for them to gather capital from people interested in buying shares. Also, the corporation is separate from the people running it and they will not have any personal liability for the company.
S Corporations are just like the standard corporation with minimum differences. Here, the profits, losses, and tax liabilities are being passed to their shareholders, instead of absorbing them as their own entities. The shareholders then pay taxes on their personal returns instead of reflecting them through the company. This, however, is only applicable for American shareholders and corporations with less 100 shareholders or less.
Limited Liability Companies
Limited Liability Companies or LLC is a combination of corporations and partnerships and sole proprietorship. Like corporations, owners are not personally liable for debts and other liabilities. And, like partnerships and sole proprietorships, they are simple and easy to follow making it faster to set up and start operations. This type of business structure is fairly new and there are few regulations to control this. It’s important to have foresight in choosing this since its popularity may bring more trouble in the near future after more laws are implemented.
Choosing the right type of business structure is crucial for your success. Being knowledgeable with all the possibilities will pay off in making your business outstand the test of time. However, there’s a lot more to know regarding different business structures.