Types of Business Structures

We don’t always see a path forward as clearly as we would like to. But charting our way with some sort of business road map can help us to see the way more clearly and can often give us the courage that we need to take those first steps. This map is known as a business plan. The business plan and it’s structure will have legal and tax implications. The following might help you identify the different types of business structures and find the one best suited for your business.

A Sole Proprietorship is the most basic type of business to establish. You alone own the company and are responsible for its assets and liabilities. It is an unincorporated business owned and run by one individual with no distinction between the business and the owner. You are entitled to all profits and are responsible for all your business’s debts, losses and liabilities.

A Limited Liability Company (LLC) is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. All profits and losses are “passed through” the business to each member of the LLC.

business structure

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.

A corporation is an independent legal entity owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs.

There are several different types of partnerships, which depend on the nature of the arrangement and partner responsibility for the business. Generally, a partnership is a single business where two or more people share ownership. Each partner contributes to all aspects of the business, including money, property, labor or skill. In return, each partner shares in the profits and losses of the business.

An S corporation is similar to a corporation, but you are taxed only on the personal level. It is a special type of corporation created through an IRS tax election.

Regardless of the business structure that you choose, having a basic understanding of the types of businesses most commonly formed can help you when it is time to answer questions from your business plan developer or you just need to see a clear path ahead.