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Choosing A Business Structure

The way you have your business setup is completely important in order for you to reach the success that you’re looking for. If your business has a weak organisational structure, you are setting it up for failure. As a new business owner, you may face obstacles which are only normal as a new company; but you do not want a weak foundation for your business, so that it fails instantly.

In this article, we have listed a few important points that can help choose a business structure that is suitable for your company.

Choosing A business Structure

What are the most common business structures?

A business structure is the type of legal entity that your company will have. The most common that you will find online when researching are: sole proprietorship, partnership, limited liability company (LLC) and corporation.

Each type of business structure can offer different kinds of benefits for your business, such as liability protection, professional help and even investors. However, in order to determine which is the right type for you, you need to consider some factors. For example, how big will your business be? Will you have a lot of partners, or are you going to be running the business solo?

How to choose the correct business structure

If you are a business that earns profit but may be facing a lot of risks such as lawsuits, then you should be looking at registering as an LLC or corporation company. They offer you liability protection, help you with your lawsuits, save you time on paperwork and you even have a registered agent. This is also known to be a ‘formal business structure’, since the business itself is legally separated by its owner.

Whereas, an ‘informal business structure’ is more suitable for a business that should consider registering as a sole proprietorship or partnership; since there is no separation between the business owners and the business itself. This also means that the business owners are responsible for the assets that they gain from the business, as they can be exposed to creditors and lawsuits.

To be more specific, a sole propetior is an individual business owner that doesn’t have a company that is formally organised and the business can be listed under the personal name. This for example can be a small convenient store, fast food truck, jewellery store, secondhand store or anything else that is considered a small business under one owner only. A partnership is the same thing, but it is listed under both personal names of the partners, instead of one and they too are responsbile for their personal assets against lawsuits and creditors.

An LLC however, is a business that is owned by members who have a formal business organisation. This could mean for example that these members could own a fast food chain or a book store that is not listed under their personal names, but the name of the LLC business instead. This then means that they are protected from any lawsuits and their personal assets are protected too. A corporation is the same thing, but instead of members owning the business, it is shareholders. Corporation companies however are larger and have a more complex formal business organisation than an LLC. Corporations also have investors and their own tax benefits.

Our say

By being able to choose the right business structure for your company, you need to first be able to plan your business idea, the target audience, which state you wish to start up in and how big you aim for the company to be. You may want to be a small, independent business owner who only needs to register as a sole propertior, or your aim is to bring in investors and become a huge corporation company. Once you have established these steps first and have built a brand image for yourself, you can then carefully decide and understand which business structure you would need to resgiter as.

John Paul
John is a full-time blogger and loves to write on gadgets, search engine trends, web designing & development, social media, new technologies, and entrepreneurship. You may connect with him on Facebook, Twittter and LinkedIn.
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