In a successful organization there are several important aspects that contribute to the success of a business. However, one of the most important aspects of a business is its business structure. A business structure can make or break an organization in many ways.
A company’s organizational structure is established through a written charter. The most common types of business structures are: the partnership, the corporation, the partnership law, and the partnership sole. A unique feature of a Limited Liability Company (LLC) is that it is a separate entity from the owners of the assets. There are certain tax advantages to owning an LLC, but the major benefit is the ability to avoid double taxation.
In a limited partnership, the partners are both separate legal entities, but have equal liability for the business. The partnership agreement generally outlines the general duties and responsibilities of each partner. An owner of a limited partnership is called a partner and has the same rights and obligations as any other partner. Partnerships are different from corporations in many ways including in the determination of the liability of the partners and their ability to transfer property. Partnerships cannot buy, sell, or transfer shares of the other partner’s stock.
Corporation is another common type of Business Structure . A corporation is established by the government as a separate legal entity from the individuals who own it. All corporate profits and losses are reported on the balance sheet of the company. Unlike partnerships and limited partnerships, corporations may use their personal assets, such as cash or short-term loans, as collateral for borrowing funds from investors. They are able to use their own capital to meet expenses and meet debt obligations.
A sole proprietorship, also called a sole-proprietorship, is a very simple form of business structure. One member owns the entire business and is responsible for doing all of the work and managing the business itself. All income and expenses are reported individually under the sole ownership. The business owner may use their personal credit accounts and own checkbook accounts at banks. There are no corporate tax returns, capital gains or losses, or personal tax returns to be filed.
Limited Liability Company is another common form of business structure. This is an agreement between the business owner and others that allows limited liability. In this agreement, the business owner promises to pay a minimum annual dividend to the investors. If any of the investors are bankrupt, then the company is solely liable to pay those debts. This means the company cannot raise money by issuing stock to pay creditors. Only the shareholders can do that.
Another structure commonly used in small businesses is limited liability partnerships (LLPs). It combines some aspects of the partnership and some aspects of the sole proprietorship. In an LLP, the business owner owns a portion of the company but is not personally liable for the company’s debts or assets. The business owner must designate an accountant or other qualified legal professional to handle the day to day financial matters. This arrangement provides a way to limit personal liability.
Limited liability companies are very popular and successful. Many owners find them convenient and easy to operate. The business structure also allows the owners to increase the equity as needed without having to start over from square one with the whole thing again. Each of these business structures has its advantages and disadvantages but all provide an excellent method for expanding into a large market and creating a substantial cash flow.
A sole proprietorship is another common structure used in small businesses. It may be set up as a sole partnership, a general partnership, or a limited liability company (LLC). In a sole proprietorship, the business owner is considered the sole proprietor and has all the rights and responsibilities related to that particular trade. He or she is not responsible for debts, liens, or stocks owned by the business. But he or she does have the right to manage the business and has the ability to add workers.
Limited liability partnerships (LLPs) and corporations both have similarities and differences but provide very different methods of operation and have different business structures. Both types of structures allow owners to have a greater degree of control over their businesses than sole proprietorships. But in addition to having limited control, a partner has no liability for the company’s debts and usually only has a minor direct control over the day to day operations. Partnerships are good for new businesses that need an accountant or bookkeeper to help maintain records but cannot afford an office or other space.
The third most popular business structure is a limited liability company (LLC). A limited liability company (LLC) is a separate legal entity from its owners or proprietors. Instead of being responsible for debts and business debts, the owners of an LLC are personally liable for those debts. Unlike corporations, a sole proprietorship or general partnership, an LLC is only legally recognized as a business when it meets the state and local tax requirements. As a result, an LLC can legally operate with almost no financial overhead and often has a lower cost of ownership than a corporation. This provides entrepreneurs with the opportunity to start up and operate their businesses without extensive debt and over-all business overhead.