Business Structure and Types

Business Structure Definition

• Business structure refers to the legally recognized organization framework of a business entity within a particular jurisdiction.
• It determines the legal, tax, and financial responsibilities of the business.

Types of Business Structures

Sole Proprietorship

• A business owned and operated by a single individual.
• Advantages:
  • Simple to establish and operate.
  • Complete control by the owner.
  • Direct tax benefits as profits are taxed as personal income.
• Disadvantages:
  • Unlimited personal liability.
  • Difficulty in raising capital.
  • Business continuity issues upon the owner's death or incapacitation.

Partnership

• General Partnership: Partners share equal responsibility and liability.
• Limited Partnership: Includes both general and limited partners, with limited partners having restricted liability.
• Advantages:
  • Combined resources and expertise.
  • Shared decision-making and risk.
  • Direct tax benefits as profits are taxed as personal income.
• Disadvantages:
  • Joint liability for general partners.
  • Potential for conflicts between partners.
  • Complicated dissolution process.

Corporation

• A legal entity separate from its owners, offering limited liability.
• Advantages:
  • Limited liability for shareholders.
  • Easier to raise capital through stock sales.
  • Perpetual existence.
• Disadvantages:
  • More complex and expensive to establish.
  • Extensive record-keeping and regulatory requirements.

Limited Liability Company (LLC)

• Combines the benefits of a corporation and partnership.
• Advantages:
  • Limited liability for owners.
  • Flexible tax options.
  • Fewer regulations compared to corporations.
• Disadvantages:
  • More expensive to form than a sole proprietorship or partnership.
  • Varying regulations by state/country.