Business Structure is basically the legal structure of any company or business enterprise. The business structure further influences the working and day-to-day operations of any company.
Basics of A Business Structure
As business structure refers to how a company is organized with regard to its legal status. The business structure of any company or organization affects various factors that eventually impact the operations, legal representation, profit distribution, and overall working of that company. Following are some of the areas that are affected directly by the business structure you choose for your company.
- Day-to-day operations
- How much you pay in taxes
- Amount of required paperwork
- Risk of personal liability
- Ability to raise capital funds
Why a Clear Business Structure is A Must for Any Company
Deciding upon the business structure before starting a corporate venture is a must. Not only because it’s a legal requirement to come up with a business structure before Setting Up a Business, but it is also very crucial for a company’s success and smooth and effective operations. Meticulous thinking and consideration is required before finally deciding upon the business structure for your company as it going to be very impactful in deciding the following:
- Clarity to employee
- More defined expectations
- Amount of taxes to be paid
- How much personal assets are at risk
- Well-defined aims and objectives
- Amount of paperwork required
- Better decision making
- Organized workflow
- Consistency in system
5 Types of Legal Structures for Business:
There are 5 basic business structures that are legally recognized all over the corporate world. Each one of these has its own pros and cons. Deliberate thinking and proper planning are required before deciding the structure you want to adopt for your business setup. Here is a quick review of all the business structures:
- Sole Proprietorship
A sole proprietorship refers to a business structure where a single person owns and has complete control over the business. This structure suits best to freelancers, home-based small businesses, retail businesses, etc.
The single person owning the business is solely liable for all debts, risks and obligations of that business.
- General Partnership
A general partnership is a business association between 2 or more persons seeking profit by holding an equal role in the ownership and operations of the company. In this business structure, each partner is jointly liable for the debts and other financial obligations. This is also termed as LLP; limited liability partnership.
- Limited Liability Company (LLC)
LLC is an ideal business structure offering the benefits of a corporation, general partnership, and sole proprietorship.
As the title explains Limited Liability partners are protected from personal liability for business debts and claims. Individuals, corporations, other LLCs, and foreign entities can be part of the LLC business structure.
- Corporations (C Corp)
The corporation is the most complex of all business structures. A corporation can be described as a legal entity that is separate and independent from the people who own or run the corporation, namely shareholders. It is an expensive business structure because it has to comply with more legal regulations, record-keeping, and tax requirements.
- S Corporation (S Corp)
S corporation (S Corp) is an alternative to the C Corp structure that has the liability protection of a corporation along with added tax benefits, making it more appealing to small businesses. In S Corp the business’ profits and losses pass through to stockholders and must be reconciled on their individual tax returns. S-Corp can have only 100 or fewer shareholders.
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View all the advantages and disadvantages of each business structure, conduct detailed research, weigh them according to your business needs, and decides which business structure is best harmonizing with your business entity.