Business Structure

Business ownership has many advantages over being employed by a company. Organizing and structuring the correct type of business will prevent you from having many headaches and challenges. Business organizational structures fall under three basic categories, which are sole proprietorship, partnerships and corporations.

The easiest business organizational structure is the sole proprietorship. Having no restrictions on the size of the business is an advantage to the sole proprietorship. The business owner makes all of the business decisions. The disadvantage of the sole proprietorship is the owner is personally responsible for all debts and business obligations. The majority of small businesses in the U.S. are sole proprietorships.

Businesses structured as a partnership is a business marriage, because the assets and debts of all partners are legally link together. Any partner can make a decision or commitment for the business and all partners are subject to the commitment. To avoid this type of situation, a written agreement between all partners should be established. The agreement should explain the terms and conditions of the partnership and how profits and debts are paid. The advantage of the partnership is its ability to easily obtain money from banks and new partners/investors. Banks prefer to lend money to enterprises that do not rely on single individuals. The downside to a partnership is unlimited liability; all partners can be responsible for unknown debt or liabilities. Consent must be given to partners wishing to sell or transfer their interest in the organization.

The corporation is a separate legal entity which is created through the state where the business is incorporated. The owners are shielded from legal and fiscal liability by a properly organized corporation. Delaware's incorporation laws are the least restrictive of all of the states; therefore, many businesses form a corporation in