Blog Detail

A business structure is an organisation’s spinal cord. Simply put, without a strong foundation you can’t go on with your business. In that sense it’s a basic necessity. For the vitality part, without a carefully thought out business structure, your business might go down the hill even if the business is operational. All your business’s day to day activities are affected by the business structure. 

There are different types of business structures and in this article we’ll talk about the popular seven types of business structures.  You need to make a list of activities that will form an outline for the business structure. Like, you'd want a business structure that is legally compilable, makes tax paying efficient, eases out the everyday routine operations, flexible to alterations, capable of alignment towards future business long term goals. Essentially it all boils down to a profitable yet feasible business structure. 

We understand it’s not a cakewalk to develop a business structure. It requires expertise, precision, thoughtfulness and experience. You can definitely approach a project management consultancy firm like ours to help you out. Our experts will sit with you and help chalk out your business structure. 

Sole Proprietorship : One of the most common types of business structures is the sole proprietorship in which the entire business is managed by one single person known as the sole proprietor. Following are the features of such a business  

• Simplest and the cheapest form of a business structure.

• Complete control of the business is with the owner. 

• The business liabilities and assets are not separate.

• Business and the owner aren't legally separate i.e they’re considered one entity.

• Both business expenses and personal finances are included on their personal tax return.

• The proprietor is solely responsible for the company’s loans, debts and liabilities.

• If there’s a debt situation, personal assets might as well go into the risk.

Partnership : As the name implies, a partnership is another one of the common types of business structures. Partnership involves two or more people coming together and sharing their pool of resources, expertise and experience to form a business. Following are the pros you can look for while choosing partnership as your business structure: 

• Financial position is strong due to pooled resources 

• Knowledge pool is shared 

• Better networking and outreach 

General Partnership :  A general partnership is two or more individuals getting together to agree to share a jointly owned business's assets, profits, and legal and/or financial  liabilities. What makes it different from a partnership? Aren’t we talking on the same lines? Well precisely, No. A general partnership has a condition wherein there’s unlimited liability. 

Partners do have equal share in profits and losses but liability can be paid off from any individual’s assets. For that you need an agreement as to clearly state what ratio is being the profits to be divided and who all are liable to pay off the debts, if they so rise. A written formal agreement is advised in the case of general partnerships. 

The retirement, insanity, insolvency or death of one or more partners can lead to fall out of the general partnership business structure. 

Limited Partnerships :  Think of a limited partnership as a special form of general partnership. The only catch in here is you ought to have at least one general partner and at least one limited partner. General partners have unlimited liability, i.e they have to assume responsibility and pay off any debts that arise. The limited partner, also known as a silent partner, is just an investor and has no liability to be assumed, though they do have a share in the profits. General partners are responsible for the ownership and running of the business. 

Corporation : It is one of the most complex types of business structures. Corporation is a business structure that exists independently. Law treats corps as separate from their owners as an independent legal entity. A corporation can get into contracts on their own but they have to pay taxes as well. 

There’s a S corporation or a Scorp existing as another form of corporation. The only benefit of electing to operate as an S corp is to avoid double taxation. The profits and losses are directly passed onto the individual's personal income without being subjected to corporate taxation. Which now brings us to the feature of double taxation.  

The C corporation is double taxed in the sense that corporate income tax is levied on the corporate profits and shareholders pay personal income tax on the profits distributed to them by the corporation.  Forming a corporation is a rigorous and costly procedure and is recommended only for expanding businesses. High level of record keeping and governance is also one of the cons of having a corporation. 

Limited Liability Partnership: In very simple terms, a limited liability partnership is a combination of sole proprietorship, corporation and partnership business structures. The liability is limited to the level of investment in the business. LLP is quite a safe business structure as it separates personal and business liability even though each partner assumes tax responsibility.  Following are a few features of the LLP as one of the most preferred types of business structures out there:

• There’s no double corporate taxation.

• LLP owners aren't liable for the business debts.

• Neither of the partners actions are binding on the other partners.

• Death, insolvency, retirement or insanity of any partner doesn’t cease the continuity of LLPs. 

•  LLPs are for businesses with the aim to earn profits.

You need to focus on the feasibility of a business structure and then go ahead with finalising a business structure. With a lot of business structures out there, you’re bound to get spoiled for choices. But keep in mind the following five factors and you can make a sound decision. Look out for legal feasibility, taxes, costs, flexibility and future business growth projections and find a compatible structure out of the list. 

Kamtech’s experts can not only help you plan your business structure but also register your company, help you in securing financial assistance and take your idea to implementation. Contact Us today for a free consultation!