Are you thinking of starting your own business? Before you start thinking about business plans and product design and marketing initiatives, you need to understand business structure.
Choosing a business structure will have long-term consequences for you and your business, and will affect how you structure your organization, how you pay taxes, and how liable you may be for business losses and debts. A lot goes into this decision, so it’s crucial to know what your options are.
In this blog, we’ll take you through what a business structure is, how to choose one, and what all the different types of business structures are.
A business structure refers to how a business is organized, according to its legal status.
Your business structure will state who owns the company, how its profits are distributed, how it will be taxed, and what roles will perform which tasks.
There are several different types of business structures you can choose from. Each different type of business structure listed here may have different requirements depending on where your business is located.
A sole proprietorship creates a business that is fundamentally tied to the person who owns the business, both legally and professionally. There is no legal distinction between the owner of the business and the business itself. This type of business structure is often chosen by individuals looking to start a small business that they can run on their own, or with the help of a few employees.
Benefits of creating a sole proprietorship:
A partnership is exactly the same as a sole proprietorship, only with more than one owner. You often see this type of business structure in small firms like law firms, ad agencies or something similar.
Benefits of creating a partnership:
Unlike a partnership or sole proprietorship, a limited liability company (LLC) creates a legal distinction between the owners and the company. However, it still has flow-through income taxation (where the income of the business is filed as part of the owner’s personal income and not taxed separately).
Benefits of creating a limited liability company:
A corporation is a legal entity separate from its owners. Corporations can be owned by individuals or other entities. Ownerships can be bought, sold, or transferred via the exchange of stock. A corporation can enter into litigation on its own, protecting shareholders from personal liability.
Corporations have a far more formal structure than other business structures. Depending on where it is incorporated, a company will need to follow certain requirements, such as filing articles of incorporation, creating corporate bylaws, and more.
Benefits of creating a corporation:
Choosing a business structure is one of the first things you should do when starting a new business. Choosing the right business structure will make a massive difference in how your business performs in the future.
Take a close look at your business. Are you just on your own, or do you want to include other people in your business structure? How do you want your profits and your employees to be taxed? Do you want full control over your business, or do you want other owners and stakeholders involved?
Once you have an idea of how you want your business to operate, an appropriate structure will suggest itself.
Many companies start out with fairly simple business structures, like sole proprietorships or partnerships, but change to more complex structures (LLCs or corporations).
This is done for a variety of reasons. The business may be getting too complex or risky, and they feel they need the protection limited liability can give them. They may also decide that their business would benefit from the stability and certainty that full incorporation provides. Or, they may decide to change business structures in order to respond to tax needs.
While it’s less common, some businesses do go the other way, changing from corporations or LLCs to sole proprietorships to partnerships.
No matter what business structure you choose, you need to invest in powerful technology to ensure your business runs as smoothly as possible. The best way to do this is with a state-of-the-art POS system.
Epos Now offers both dedicated retail and restaurant POS systems that will help you take your business to the next level.
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