Types of business structures

            I’m sure you’ve noticed that there are companies of different sizes like the restaurants you see on the side of the streets or the huge ones which have really big headquarters around each region of the world. They are most likely different business structures because some structures do not have the typical characteristics required to function such a big company even though there are exceptions. The following paragraphs will describe the types of business structures there are.

Citation: Wikipedia.com

            The first business structure is called the sole proprietorship. It is the simplest among all the types of business structures. As the name suggests, there is only one owner. There are no procedures and fees to pay in order to set up this type ofbusiness (FindLaw). Another benefit is that you have full control of the operations in the business. However, in terms of legal entities, the owner and the business are the same thing. This means that the business taxes will be charged on your income, and if your business has any liabilities (like a court judgement or a past due debt), you are personally liable for them (FindLaw), thus meaning that all your personal assets could be held liable to pay for the business’s debts. Examples of this type of business structure are small restaurants and stores you find on the streets.

            The second type of business is called a partnership. A partnership is similar to a sole proprietorship except that it is owned by more than one owner. Similarly, it does not need files or pay any fees to set up this type of business. Also, the partnerships owners and the business have the same legal identity, like the sole proprietorships. Examples of these could be businesses that are set up by friends.

            The third type is a more complicated version of partnerships, called limited partnerships. Unlike normal partnerships, a limited partnership “costs money and is complicated to set up”. There are two types of partners in a limited partnership: the general partners and the limited partners. The general partners, similarly to the normal partnership, have the same legal identity as the business, and so are personally liable to the debts or other liabilities of the business. On the other hand, the limited partners are invited to invest in the business by the general partners. However, the limited partners, unlike general partners, have limited liability which means that liabilities are not held personally towards them. In layman terms, that means that the individual members don’t have to pay the debts the business is liable to. This type of business structure is not recommended for small businesses with “small potential for personal liability” as the cost of starting up and running the business may be more costly compared to the revenue they earn.

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            The fourth type of business structure is the most complicated of them all, called limited liability companies (LLC) and corporations. For both types, the owners have limited liabilities. The difference is that, in corporations, the owners do not pay business tax unless they withdraw money from the corporation in terms of dividends and bonuses. The money withdrawn is charged as personal income tax. However, for LLCs, it is not a separate tax entity with the owners, meaning that the owners must pay personal income taxes based on the profit shares of the business. The positive side is that if the business is engaged in executing risky activities that involves a high chance of being sued or could incur a lot of debt, the limited liability characteristic of the business structure could protect its owners’ personal assets. Examples of these businesses are the typical large companies you see like Coca-cola and Apple.

Citation:coca-cola.com

Most of the businesses you see are concentrated in generating profit for their personal benefits. However, non-profit corporations carry out their purpose, which is not mainly profit-oriented, such as ‘charitable, educational, literary, religious, or scientific’. One of the benefits of a non-profit company is that if it’s for a charitable purpose, then these companies are usually not taxed by either federal or state governments. Examples of non-profit corporations are UNICEF and local charities.

Citation:pioneercoop.ca

A Co-Op is probably a business type that you don’t usually see or hear about very often. This is a type of business that are owned and operated by the members of a Co-op in a democratic fashion. It is usually formed by consumers who want to create a friendlier version of the business. However, these type of businesses are regulated by the government.

As you may all have observed, these business structures has its own advantages and disadvantages. The most effective structure for your company will depend on the company's goals, amount of finance and type of goods and services sold. It will also depend if you want to share your profit or have full control of your company as other than sole proprietorship, there will be shareholders who have opinions on how the business should be run which may be beneficial or detrimental to the business depending the different stakeholders' viewpoints.

Reflection

            Despite having studied several business structures during high school and personal experience, there were still structures that I do not recognize when I was researching. Furthermore, I had problems with some of the terminologies as I was not very familiar with them. Also, I had trouble finding a source with substantial information about each business structures. However, when I found it on foundlaw.com, it had all the information I needed.

            It was helpful that I learned some of this information when I was in high school but when I researched more into it, I was able to learn more types of business structures such as limited partnerships and limited liability companies.

            Learning these type of business structures will help me decide on the type of business I want to own in the future as each type of business structures have their own particular purposes, advantages and disadvantages. However, I would still need to find out what regulations there are for every type of business structures, as some have more bureaucracy than others.

-By William Tjen