Different Business Structure

Kyleigh Ing | 2023

When first starting up a business there are many things to consider; including the format and structure of the business. There are three main business structures that an organization can be classified under, each having their own benefits and suitabilities for different needs. As an emerging business owner you may choose between classifying your business as a sole proprietorship, partnership or corporation.

A sole proprietorship may be the easiest to begin as any organization can be classified as a sole proprietorship. Even something so simple as opening a business on social media can be immediately classified as a sole proprietorship organization. Sole proprietorship grants a single owner full control over a business’s executive decisions and is most ideal for small business start ups. While sole proprietorship can grant full control, this also means there are unlimited liabilities and revenues will be taxed personally.

Opening a business under a partnership type structure is similar to sole proprietorship but differs in the sense that there is more than one owner. While neither sole proprietorship nor partnerships have legal entities they must pass to classify themselves as such, partnerships will usually have contracts in place to distinguish equity and establish boundaries for the company. While you may give up some control over executive decisions, partners can provide different points of view that can better the business.

Corporations are the most different of the three structures. To incorporate a business entails much legal paperwork that must be completed and processed. It is not as simple a start up as sole proprietorships and partnerships. Incorporated businesses are audited often and thus must ensure their financial records are valid and accurate. This business structure provides limited liability for employees as they will not be liable if the business declares bankruptcy for example. This structure will also allow for the business to be taxed corporately as opposed to personally.

There are both benefits and downfalls to each business structure. Ultimately it depends not only on the type of business operation but also on the owner/owners. Sole proprietorships are for those who work strongly when they are independent. However in a partnership, owner’s may have different strengths that are all essential to the business and thus can be best for the company. A corporation is formal and carries great tax benefits along with limited liabilities. Starting a business can be as simple as starting on social media and eventually expand to have a board of directors. The owner is tasked with deciding which structure is best suited for their business at that point in time.