"Business structure" refers to the way that a business is organized in terms of leadership, direction, and rights/liability. Also called "business form", the choice of business structure can greatly affect the scope and limitations of what the business can accomplish. Some common types of business structures include:
- Various type of corporations
- Sole proprietorships (owned by one person)
- Various types of limited liability entities (LLCs, LLPs, LPs, etc.)
- Non-profit organizations
- Various other types of business structures
Each of the different business structures are associated with various characteristics and benefits/drawbacks. Proper business planning includes a consideration of what type of business structure to create when starting a business.
When choosing a business structure, it is important to identify the needs and goals of the organization. From there, you can begin selecting business structures that might best fit your business goals. Some factors include:
- The size of the business (number of members and directors, etc.)
- What type of business activity you will be engaging in
- The amount of control you wish members to have over the business
- Transferability and succession of the business
- Whether or not the company will be issuing stocks and other ownership interests
- Details regarding liability for losses
- Distribution of profits and business assets
Generally speaking, businesses that are seeking more longevity and less member liability for losses and violations may wish to file as some type of formal corporation structure or as a limited liability entity. These provide more protections for directors and provide a buffer in terms of liability issues.
Business that are smaller and are seeking more control over day-to-day operations might choose to create a partnership or a sole proprietorship. These allow more efficient decision-making processes and allow for a more hands-on experience.
Lastly, there may be some disadvantages associated with certain business forms. For instance, a partnership will automatically dissolve if one of the partners becomes incapacitated or chooses to disassociate from the group.
Choosing a business structure is the first step in creating a successful business operation. You may wish to hire a business lawyer near you if you need advice and input in choosing a business structure. Your attorney can help research the laws and requirements in your area that might apply to your business. Also, if you need to file any legal claims for a dispute, your attorney can represent you in court. Some businesses may require a shift in structure at some point down the line; these types of changes may require the help of a lawyer as well.