A business structure is a type of organization that is legally backed and recognized within a country or state. Before starting a business, one will need to choose the best possible structure for his or her intended business. The larger the business structure, the larger the sum of money required to start and run such business. The type of business structure will also reflect the amount of tax paid on the business. Oftentimes people start with a small business structure; let’s say sole proprietorship for instance because it may requires a small capital. As the business grows, one may wish to change the structure of the business in order to accommodate its growth. This change as a result of business growth will also result in an increased the tax liability.
Below are the different types of business structure:
This is a one man or woman business. If the man or woman is married, both parties can still be considered as a sole proprietorship. They happen to be the easiest business structure to start because the business capital is not necessary huge. The taxation of a sole proprietor can be significantly lower when compared to other forms of business structure. The sole traders have got total control over their business because all decision concerning the business is made by them. On the other hand, they are liable for all the loss and debt incurred in the business. Nowadays, obtaining loans to begin a sole proprietorship business structure is easier compared to the past where one will need to depend on their personal income or the use of collaterals.
Partnership consists of people (2 - 20 people and not including married couples) coming together with the intentions to utilize their money and skills for the purpose of building a business together. A member in the partnership may take loan on behalf of the partnership business structure provided the legal agreement permits it. Partnership can be of two forms: General partnership and Limited partnership.
In general partnership, all the partners contributes their money and skill to manage the business. They equally share the profit from this business structure and bear the loss together. They will also share equally any debt incurred in their business.
A limited partnership may consist of both a general partnership and the limited partnership. The limited partners are actually limited in the business because they have no control over the business. They serve only as investors in the business and accept a lesser liability when things go wrong in such business; unlike the general partners who operate the business and will accept a greater liability compared to the limited partners.
The Limited Liability Company business structure combines the advantages of sole proprietorship and partnership. It is formed by a group of people who have legally agreed to the general management of the business. The tax payment applies to each member of the Limited Liability Company.
A corporation is a legal entity where a group of people called investors buy shares which becomes the evidence of being a member of the corporation. The cooperation be profit or nonprofit oriented.
The nonprofit corporation will usually have a specific goal outside making profit. These goals are usually of benefit to a certain group of people in the society, for instance, the widows, less privileged, physically challenged and so on. In a profit oriented corporation, the liabilities and benefits goes beyond a single individual.
For a franchise to be established, the go-ahead is often given by a parent company (called the franchisor) before the other person or group (called the franchisee) can carry out related commercial activity on behalf of the franchisor. For instance, a parent company that produces drugs may require an individual or a group or another company (the franchisee) to become the official distributor for the parent company’s product.
Note: A franchisee is a individual or company that has been liscensed to do business on behalf of another company called the franchisor. The franchisee will have to purchase a franchise from the franchisor.
This form of business structure will enable two or more persons acquire the same business space even though each person is solely responsible for his or her own profit and loss during the business activity. For instance, two persons may share a shop with the purpose of uniquely running their respective business in it. Another example is when two unrelated persons buys a house after which they both live with their families in different apartments within the same house.
A trust business structure is based on trust and will often require a legal structure to begin with. The trustee is assigned with the privilege of managing the business or property of another person referred to as the beneficiary.
An association is a group of people coming together with the intentions of supporting each other. The members of an association are usually of similar occupation. For instance, we may have the association of barbers, associations of tailors and so on. The members generally contribute to the growth of the association.
This business structure is formed by two or more persons (or organizations) only for a limited time frame. They carry out their business within the stipulated time before going their separate ways.
This is a public corporation established by the local government.
Topics in Business StudiesScope of Business and Management Studies Disadvantages of Money Principle of Double Entry Clerical Staff, their Qualities and Functions Meaning and Types of Business Structure