Three Basic Types of Business Ownership Structures: Advantages and Disadvantages

There are three basic types of business structures. One should know the basic ways before getting into a trading situation to avoid potential trouble. The three basic types of business structures are as follows:

i) Sole proprietorship:

This type of business is owned by a person called an owner. The owner runs the business. Some disadvantages are the following: the owner assumes all the risks of the business and personal assets can be taken by creditors. One of the main advantages of the sole proprietorship is that the owner makes all the decisions.

ii) Association:

a) The corporate structure of the general partnership is owned by more than one person.

One or more partners can manage the business. As for the disadvantages, such as sole proprietorship, the partners bear the risks for the business and their assets can be taken by creditors. Additionally, the partners may not agree on the best way to run the business, which could lead to conflict. One advantage of a partnership is that the owners share the risks and decision making.

b) There is another form of business structure in the field of partnership, which is

called a Limited Liability Company (LLP). This form is different from the general partnership structure. Liability is limited to the assets of the company in this business form.

iii) Corporate:

a) The general corporation is owned by stockholders (or stockholders).

Typically, a corporation can have many owners and they usually employ professional managers. The owner’s risk is generally limited to their personal investments, and they often have very little influence on business decisions. However, the corporation’s veil can be lifted if the corporation is negligent in its operation.

b) The next corporate form is the Limited Liability Company (LLC). East

The structure is different for the general corporate form. As the name implies, liability is limited in this way in relation to the general corporate structure.

c) Finally, there is the non-profit corporation. These types of corporations

they are usually 501(c), such as a church, community organizations, a public high school, YMCA and the like. Tax structures are typically different for for-profit organization than they are for non-profit corporations.

Before making any business decisions, it is best to consult a professional in the field, such as an attorney who specializes in the field of company formation. There are also some business consulting firms where you can get help. The Small Business Association also has a group of people available to help known as the Service Corps of Retired Executives (SCORE) or Counselors to America’s Small Businesses.