Various Forms of Business and Selecting the Best One
This blog is going to be discussing one of the most foundational decisions – what is the best type of business structure should your business employ. Starting a new business is an involved process that entails several strategic decisions. There are issues to consider such as the number of employees, location, hours of operation, products and services, and more. Not sure what types of organizational structure there are? No problem, we’re here to help.
There are four main types of business structures:
· 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 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 several free resources for small businesses – such as the Small Business Administration – 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.