Which Business Structure Is Right For You?
There are at least five common ways for individuals to do business in the United States and in most other places. The way the business is carried out depends on the specific business structure type. In any of these structures, leadership is a prime concern because each has its own advantages and disadvantages. This article will provide a brief synopsis of the five most common types of business structures.
The sole proprietorship is the most basic and simplest of businesses. It is not a legal entity and simply refers to a person (a human being) who owns the business and is personally responsible for its liabilities. It can do business under the name of the person or under a fictitious name that states the type of business, like Knight in Shining Armor Computer Service. This type is likely the most popular because it is simple to set up and costs are nominal. Contracts made by the business are signed in the name of the owner and the owner is fully responsible for carrying out the terms.
A limited partnership is a type of business where one or more persons associate with one another to do business. In this structure, limited partners usually answer to one general partner. The limited partners have limited liability to the business. This structure is often used in law firms and medical practices and may also be seen in the financial arena. The limited partners (those who invest in the firm) are not allowed to take an active role in the management of the company. In law firms, the limited partners are usually referred to as “junior partners.” Junior partners sometimes fill leadership roles as they gain responsibility.
Unlike a limited partnership, a general partnership is a relationship of equals. Under the Uniform Partnership Act, a general partnership is “the association of two or more persons to carry on as co-owners of a business for profit…whether or not the persons intend to form a partnership.” This type of structure can be formalized either by a handshake or contracts. Both are as binding and legal. This is the type of business structure that can lead to the most strife between principals. Although a handshake is legally binding, an agreement drawn up by an attorney is usually preferable. Partners are legally liable for the debts of the company.
Limited Liability Company
The limited liability company (LLC) is the newest form of American business entity. Basically the inventions of state legislatures, LLCs are businesses that have the advantages of corporations without all the paperwork. The first state to have an LLC structure was Wyoming in 1977, with the IRS recognizing the type in 1988. LLCs come with liability protection and tax sheltering with the ease of the administration of a partnership. The “limited liability” benefit protects the owners from personal loss. The relative newness of the LLC business structure type is a disadvantage. Thus, there isn’t enough case law to resolve some of the legal issues involving LLCs.
The basic purpose of the corporation is to raise capital. It is a company that is owned by shareholders, with the one owning the most shares wielding the most authority. The company is usually operated by officers that are appointed by the board of directors. The laws pertaining to the maintenance of corporations are sometimes unwieldy and hard to understand depending on the jurisdiction. Corporations are required to hold regular meetings, and officers are required to meet certain formalities. They can be quite expensive to start up, and annual costs can be prohibitive for the small businessperson.
These are the most common types of business structures in the United States. The sole proprietorship, the limited partnership, the general partnership, the LLC, and the corporation all work together to create a general business climate. Leadership in these businesses is often dependent on how the structure fits personalities and attitudes. Learning how to select the perfect structure for your business is a decision that should be considered with due diligence.
Once you have set up the business structure that is right for your new business, feel free to contact the printing firm of Hawk Graphics, Inc. We are located in Mt. Freedom, NJ but have been providing all types of commercial printing services all across the US. We would love to help you get started with your new business venture. Contact Hawk Graphics, Inc.