Business Structures: Advantages & Drawbacks

One of the first things that you need to think about when you set up a business is what kind of structure you are going to use. There are so many of these that it is hard to appreciate which is best at a glance, and it is much better to look into them in some detail and work out that way what they might be good for, and in which ways they might detract. In this post, we are going to help you out on this front by looking at a few of the more common structure types, along with a discussion of their benefits and disadvantages.

Pic Source – CCO Licence

Sole Proprietorship

This is probably the most basic and simplest kind of business, so much so that many people don’t really think of it as a business at all. In a sole proprietorship, it is exactly as it sounds: you don’t hire anyone or work with anyone, it’s just you. You are the business – and of course that means that you personally take the brunt of everything that happens. So if you experience debt in the business, it’s your debt. This is a risk, but sometimes this is the only business type that you really need.

Limited Liability Company

A Limited Liability Company (LLC) is one of the most common types of business structure out there. In an LLC, the main benefit is that you are personally protected from anything that happens in the business – within reason. If there is any liability at all, it is not passed on to you as an individual, or to anyone else, but rather it stays in the business itself. Debt in the business doesn’t move anywhere. Clearly, that’s very useful. There is also the matter of tax. The tax implications vary by filing type, and in an LLC you don’t have to worry about the double taxation of many other kinds of business.

Pic Source – CCO Licence

Partnership

There will be many times when your business is going to be owned and managed by several people equally. When that is the case, you will usually set up a partnership, which might be one of the least understood of the business structures. In a partnership, everyone – well, all of the partners – share responsibility, and that also means they share debts and so on too. This is not usually the best choice of business unless you think you are going to have lots of passive investors.

Corporation

In many ways, the corporation is what a lot of people are probably thinking of when they picture themselves running a business. But it is actually one of the rarer types out there, and it’s not necessarily true that you will turn straight to this with your business. A corporation is a separate legal entity, and as such it is entirely independent from its owners. Because of this, there are more regulations and more taxes that you have to worry about.

As you can see, the types vary greatly. Get to know them well, and you will be able to decide which is best for you much more easily.

0 Responses to “Business Structures: Advantages & Drawbacks”


  • No Comments

Leave a Reply