August 6, 2019 Last updated August 5th, 2019 1,055 Reads share

InfoGuide to Choose the Right Structure for Business Startups

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Many nurture a business idea in mind and always on the lookout for ways to actualize it. In fact, it is not that easy to kick start a business and get it established in real. Being fearful about it, many tend to back-out from their business plans and stick to their day jobs, even when they have the urge to start something of their own. If you are serious about startup business, here we will discuss how to take the first couple of steps rightly.

Choose an apt business structure.

Now, as you have planned to start your own business, first determine what kind of an organization and business structure may best suit your needs. A business structure may largely depend on whether you want to run something under your sole ownership or want to get some associates or partners. Primarily, there are four types of business structures as:

  • Sole proprietorships
  • Partnership
  • Corporation

1. Sole proprietorship

Insole proprietorship businesses, you will remain responsible for all the business obligations and debts, but all the profits also will come to you alone. A creditor may make a claim against your assets in case of a debt recover if you are a sole proprietor.

Advantages of the sole proprietorship

  • The easiest way to establish a business.
  • Comparatively lower cost with minimal working capital
  • Lowest regulatory burdens
  • Direct control of the business
  • Can go by your own decisions
  • Many tax advantages if the business is not running well.
  • All profits come to you.

Disadvantages of the sole proprietorship

  • Your personal assets are at stake (unlimited liability)
  • Income tax to be paid at personal rates.
  • Will fall into a higher tax bracket if the business generates more revenue.
  • Trouble if you are absent from the business for a while.
  • Need to raise all the capital on your own.

2. Partnership business

The partnership is an ideal structure if you are planning to incorporate the business. With a solid partnership, you can combine the financial resources of a partner too to think big. You can establish business terms with the partner and also protect yourself in case if any disagreement or any dissolution in drawing up an agreement. Remaining as a partner, you may share the profits of the business as per the agreement terms.

One simultaneous option is a limited liability partnership where you don’t take part in managing or control in the business, but you invest and also stay liable for the debts to a certain degree. While establishing a partnership, you may have to sign a partnership agreement by cross-checking it with a lawyer.

Advantages of partnership

  • Easy to build a partnership
  • Costs can be equally shared.
  • An equal share of profit, assets, and management.
  • Many tax benefits if there is a lower income or loss.
  • Better brainstorming for better ideas.

Disadvantages of partnership

  • No legal difference form sole proprietorship
  • The unlimited liability applies in this case too.
  • The challenge of finding an apt partner
  • A chance of conflict development at any point.
  • I need to take the financial responsibility of the partner’s decisions too.

In any case, business database management is a crucial consideration to make. If you own a website and do a lot of online transactions, it is important to have a solid database structure and support form a professional provider like in order to upkeep your business database safely. Let’s get back to the discussion of business structure.


3. Corporations

Incorporation is another major business structure to consider. Incorporation can be established at the provincial level or Federal level. While incorporating a business, it becomes an independent legal entity, which is separate from the owners and shareholders. So, you are not liable or the debts or obligations of the corporation. It is, however, essential to take legal advice before incorporating a business.

Advantages of incorporation

  • Limited liability
  • Transferable ownership
  • Existence as a separate legal entity
  • Easy to find capital through various modes
  • Many tax advantage for incorporated business

Disadvantages of incorporation

  • Closely regulated.
  • Incorporation is more expensive than other modes
  • Extensive documentation and corporate records are needed and to be filed properly
  • Need to resolve possible frequent conflicts between the directors and shareholders

4. Cooperatives

Another unique business structure to think of that of a cooperative business model. In a cooperative, you may run a business that is owned by a collection of people or members. This is, however, the least common mode of running a business, but can be ideal in some situations. If a group of people combined for a purpose plan to pool their resources and think of a business model, then it can be planned as a cooperative model.

Advantages of cooperatives

  • Members own them with contributions from all.
  • A democratic working model and one member-one vote type of decision making.
  • Limited liability
  • Equal profit sharing.

Disadvantages of cooperatives

  • Chance of conflict between members as the count is high.
  • Tedious decision-making process
  • The participation of all members and unanimous decisions are needed for success.
  • Need for extensive record-keeping

I hope, now you have a better understanding of the structure of possible business establishments in order to choose the most appropriate model for you. In order to identify the best approach, you need first to create a comprehensive business plan for your startup.

The business plan for typical businesses may vary in terms of their scope and length, but you can find that all successful businesses are products of a proper plan. There are many common elements you can find in successful business plans, and most primarily, you need to consider the nature of your business and environment.

Based on the nature of your business, you need to identify the essential elements to be considered, and then the key points at each session needed to be explained well in the business plan. A business plan will not only act as your guideline while running it in real-time but also will help you to present your business in a prospective way to the potential investors or banks to apply.

Mike Giannulis

Mike Giannulis

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