Choosing a Business Structure | Types of business structures

 Choosing a Business Structure | Types of business structures

Choosing a Business Structure | Types of business structures

The business structure you choose affects your project in all respects. So you have to choose a business structure that will give you the right balance between legal protection and benefits.

Your business structure also affects the amount of taxes you pay, your ability to collect money, the paperwork you need to file, and your personal liability.

Although you may move to a different business structure in the future, there may be other restrictions depending on your location. This may also lead to tax consequences and other complications.

Consulting a business consultant, lawyer or accountant can be helpful at this point.

sole proprietorship

It is easy to form a sole proprietorship because it gives you complete control over your business. Your business is automatically a sole proprietorship if you do business but do not register as a business of any kind.

A sole proprietorship does not produce a separate business entity. This means that your business assets and liabilities are not separate from your personal assets and liabilities. You may become personally liable for the debts and obligations of the project. Sole proprietors can have a business name. It can also be difficult to raise money because you can’t sell shares, and banks are reluctant to give loans to individual companies.

A sole proprietorship can be a good option for low-risk businesses and owners who want to test their business ideas before forming a more formal venture.


Partnerships are the simplest structure for two or more people to own a business together. There are two common types of partnerships: limited partnerships and general partnerships.

A limited partnership has one general partner who has unlimited liability, unlike other partners where their responsibilities and control over the company is limited. Profits are passed onto personal tax returns, and the general partner must also pay self-employment taxes.

On the other hand, there is a general partnership wherein the members actively participate in the day-to-day operations of the firm.

Partnerships can be a good option for companies with many owners, professional groups (such as attorneys), and groups that want to test their business ideas before forming a more formal venture.

Limited Liability Company (LLC)

This is a legally registered business structure which is restricted by shares. All shareholders in such a structure are liable for all liabilities incurred by the company. You need to come up with a business name indicating what kind of operations the setting is involved in. It must end with the descriptor “LLC”.

The following is the introduction of the regulation materials. This document is similar to the articles of association that regulate the appointment of company directors and the issuance of shares. The Articles of Organization record all the important information regarding the LLC. This includes the physical address, official name of the LLC, and all details of the filing agency. Besides, it records the date on which the company intends to launch its operations.

Just like a partnership, an LLC needs an operating agreement. Simply put, it sets out all of the rights and obligations of each partner in the LLC. It records the amount contributed by each member and the percentage by which the proceeds will be divided. All tax considerations are also part of the contents in this document. Speaking of taxes, a tax registration certificate must be obtained from the relevant authorities.

An LLC is an exceptional business structure because it does not follow all of the formal requirements as those of a corporation. Members unanimously agree on how the business should be run. They don’t necessarily need a board of directors. Compatible with small and medium businesses. They do not need to maintain complex documents or hold meetings to discuss business matters.