BIN Digest

Starting a new business is an involved process that entails a number of strategic decisions. There are issues to consider such as: number of employees, location, hours of operation, products and services and more. This blog is going to be discussing one of the most foundational decisions – what form and type of organizational structure should your business employ? 

 

Not sure what types of organizational structure there are? No problem, we’re here to help.

 

There are four main types of business structure:

 

·         Sole Proprietorships – Owned in full by one person who is responsible for all decision making. They can work independently (such as an independent contractor) or choose to hire employees. The sole proprietor assumes total liability for any and all debts that are incurred.

 

·         Partnerships – Just like it sounds, a partnership is when two or more people decide to own a business together. There are three different types of partnerships with different structural implications. These are: general partnership, limited partnership and limited liability partnership. In a partnership, owners are personally liable in the same manner that a sole proprietor is.

 

·         Limited Liability Companies (LLC) – having the characteristics of both a corporation and partnership, an LLC provides limited liability to owners. This is a popular business model since it has the most flexibility and offers the best of both worlds – ownership without responsibility to stockholders and protection from full personal liability should something go wrong.

 

·         Corporations – A legal entity separate from those that formed it, a corporation has legal rights and specific laws that apply to it. This entity is controlled by stock – which is essentially how much of the company you own. Unlike a sole proprietorship or a partnership, if a corporation fails the owners/stockholders only risk losing their initial investment.

 

When deciding on the right business form, seek legal advice. There are a number of free resources for small businesses – such as the Small Business Administration (www.sba.gov) – that provide counseling, advice and more. Do some research on your business industry and see what organizational structures have been working for your peers and competition.