When starting a new business or expanding your existing one, it’s evidently a big endeavour that you’re taking on. And in order for it to be successful and to also stand the test of time, there needs to be structure. There are many components that go into creating a solid foundation and substantial functions within any business, and being able to somehow bring it all together in a way that makes it a well-oiled machine certainly needs proper planning.
So the question is, how can you determine what your business structure needs to look like and which category do you fall under in order to cover the legal and functional aspects? We’re going to provide you with 5 factors that will help you determine your business structure and help you understand better what it is you’re required to do.
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Are You Self-employed?
If you intend to run a business where you are the sole owner, then the best business structure for you would probably be a sole proprietorship. What this means in a nutshell, is that your business runs only one kind of service, and that your personal assets and liabilities are connected with those of the business- this is because you are the only one running this ship!
You’ll find that this kind of business structure works best for startups that have just begun in the market and also prefer to run a low risk operation. If this is the kind of business you are running, then you’re probably going to want to also consider outsourcing, because it will help lessen the load, if things get too hectic. You can read more about this option if you do a bit of research online to see what kind of resources are available.
One of the more popular outsourced services is the hiring of virtual employees, these are employees that work for your business, remotely. This usually works out better because if you are running a sole proprietorship, you don’t want things to get overwhelming, and outsourcing is probably your best bet.
Keep in mind that as you are self employed and running the business under the structure of sole proprietorship, it may not be as easy to get loans from banks, but there are always other options.
2. If There Are Partners Involved In The Business
If you are running a business where there are several owners involved, then a partnership structure is the one for you. This is for people who decide to run a business together. There are different kinds of partnership structures, so you need to define what kind you’re running before you take on the structure.
- Joint Venture: This is when people partner up only for a specific project, and not for the long term.
- General Partnership: A general partnership is one that involves all partners for the long term, with equal responsibilities and ownership over the company.
- Limited Partnership: This is when one or more of the partners involved in the partnership only play the role of funding and have a minimal role to play in the actual functionality of the business.
3. Does Taking Full Responsibility Seem Like Too Much?
If you’d like to run the company from the standpoint of being in between a sole proprietorship and a partnership, which means you will have involvement in the business, but you’ll also have the support of other participants, then looking into a Limited Liability Corporation, also known as an LLC. How this differs from sole proprietorship is that you don’t have to link your personal assets to those of the business, and you are technically still considered self-employed.
However, keep in mind that with this security comes the fact that establishing this structure can be much more complex than the other two in terms of paperwork.
4. Do You Have A Large & Established Business?
If you have a large and established business and are running a new entity, then you fall under the structure of Corporation businesses. This is an entirely different ball game, because if you fall under the category of being a corporation, there’s quite a bit that goes into it.
Corporations are held liable legally, but they come with the best form of protection. There’s a lot more that goes into the structure and process because there needs to be reports made and record keeping needs to be extremely intricate and always up to date. Corporations generally have shareholders in the mix as well, which naturally adds another dimension to the complexity of the structure.
5. Is The Purpose Of Your Business Charitable?
If you are running a business that aims to be a charitable, research based, or religiously based company, then you fall under the Non-Profit structure. This kind of structure is different from the others because since the purpose is not for profit, they generally are exempt from taxes.
However, that’s not to say that the paperwork for it will not be as complex as that of the others. They still function as a business and need to ensure that all is well from all fronts to ensure that the business is run correctly. The outstanding factor here is that there needs to be a considerable amount of fundraising activities to keep this kind of business alive.
It may seem a bit confusing to understand which category of structure your business falls under, but using the factors provided above, it’ll be much easier to specify. This is mainly important from a legal standpoint, to understand what kind of paperwork you need to get through and also what kind of operation you’re going to run, and how you’re going to run it.
As your business grows, it’s not uncommon that the structure may change, and in this event, it’s important that you get yourself up to speed on what needs to change in the way you run your business and how you deal with the different aspects of the legalities.
The bigger you get, the more people get involved and it’s extremely important that you are properly educated on how each structure works and what it is you need to do to run the business in a manner where nothing goes by unattended, because this could create problems.
