Four Basic Business Structures

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When starting a new business, the first thing a business owner is supposed to decide is the type of business he wants. The essential factors which can help a great deal in the decision-making process include your business type, capital needs, number of employees to be hired, pay distribution plan, liabilities, legal restrictions, and tax implications.

Some common types of business structures available for you are:

1. Cooperative: A cooperative is a business structure which is organized, owned and democratically headed by people who avail its products and services. A cooperative is discrete in nature because there is a relationship between the ownership and the users of the business. A patron or user refers to a person who carries out business with the cooperative. Owner, apart from being the man-in-lead is also in one way or the other, a user of the cooperative. Cooperatives, like investor-owned corporations, have elected boards of directors and appointed officers. Board members take vital decisions. The members exert their control through voting power that is attached to their membership.

2. Corporation: The structure of a corporation is multifaceted. Rather more expensive to set up, the control of the cooperation stays with the people who hold shares in the stock. If a particular stockholder or a group of stockholders own as a minimum 51% of the stock, they are eligible to make policies and decisions. The size of the corporation will reflect on the functioning of the organization i.e., whether it operates formally or informally. Smaller corporations are likely to function less formally, however still need to maintain proper documentation. Officers – hired by board of directors – are responsible for daily management tasks and can legally bind the corporation to contracts they sign on its behalf. Furthermore, corporation is either C or S type.

3. Sole Proprietorship: thought to be the least expensive, Sole Proprietorship is the most comfortable and easiest way to start your business. It is owned by an individual who maintains all of the legal rights and responsibilities of the business. He holds control over all profits flowing in the organization and solely responsible for all debts, if any.

4. Partnership: A partnership is created when two or more people agree to avail their economic, administrative, and technical resources with the intention of operating a profitable business. There are basically two types of partnerships: limited partnership and general partnership. Limited Partnership is one which has both limited and general partners. The general partners run the business and alongside, are answerable for the debts in the partnership. Limited partners lose limited amount in case of a loss, compared to the amount invested in the deal. Whereas, a general partnership is thought to be the one which is devoid of limited partners and each partner in the deal holds administrative authority and responsibility of the debts taken for the partnership.


Source by Maira Hassan

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