What Are The Forms Of Business Structure

Spread the love

A suitable business structure will give you a good day-to-day operational and tax status and will also reduce the risk of your personal assets. Therefore, you should choose a business structure that strikes the right balance between legal protection and benefits.

Before registering for a business, you need to choose a suitable business structure, and many companies also need to obtain tax numbers and documents to obtain the appropriate licenses.

Choose carefully. While you may convert to a different business structure in the future, there may be restrictions based on your location. This could also result in tax consequences and unintended dissolution, among other complications.

What are the forms of business structure?

1.Partnership

Partnerships are the simplest structure for two or more people to own a business together. There are two common kinds of partnerships: limited partnerships (LP) and limited liability partnerships (LLP).

Partnerships can be a good choice for businesses with multiple owners, professional groups (like attorneys), and groups who want to test their business idea before forming a more formal business.How to do a successful business

2.Sole proprietorship

A sole proprietorship is easy to form and gives you complete control of your business. You’re automatically considered to be a sole proprietorship if you do business activities but don’t register as any other kind of business.

Sole proprietorships can be a good choice for low-risk businesses and owners who want to test their business idea before forming a more formal business.

What Are The Forms Of Business Structure

3.Corporation

A corporation, sometimes called a C corp, is a legal entity that’s separate from its owners. Corporations can make a profit, be taxed, and can be held legally liable.

Corporations offer the strongest protection to its owners from personal liability, but the cost to form a corporation is higher than other structures. Corporations also require more extensive record-keeping, operational processes, and reporting.

Unlike sole proprietors, partnerships, and LLCs, corporations pay income tax on their profits. In some cases, corporate profits are taxed twice — first, when the company makes a profit, and again when dividends are paid to shareholders on their personal tax returns.

Corporations have a completely independent life separate from its shareholders. If a shareholder leaves the company or sells his or her shares, the C corp can continue doing business relatively undisturbed.

Corporations have an advantage when it comes to raising capital because they can raise funds through the sale of stock, which can also be a benefit in attracting employees.

Corporations can be a good choice for medium- or higher-risk businesses, businesses that need to raise money, and businesses that plan to “go public” or eventually be sold.

4.Limited liability company

An LLC lets you take advantage of the benefits of both the corporation and partnership business structures.

LLCs can be a good choice for medium- or higher-risk businesses, owners with significant personal assets they want to be protected, and owners who want to pay a lower tax rate than they would with a corporation.

5.Cooperative

A cooperative is a business or organization owned by and operated for the benefit of those using its services. Profits and earnings generated by the cooperative are distributed among the members, also known as user-owners. Typically, an elected board of directors and officers run the cooperative while regular members have voting power to control the direction of the cooperative. Members can become part of the cooperative by purchasing shares, though the amount of shares they hold does not affect the weight of their vote.

Combine different business structures:

Names such as non-profit organizations are not strictly business structures and can be understood as tax status. A limited liability company can be taxed as a company or a non-profit organization. These arrangements are less common and may be more difficult to set up. If you are considering one of these non-standard structures, you should contact a business consultant or lawyer to help you make a decision.

Leave a Reply

Your email address will not be published. Required fields are marked *