Getting Business Structure Right

business-structureWhen deciding to start a business, it is important to know which legal structure will be the best so the company attains its greatest potential. Every structure comes with different benefits and drawbacks, which is why every choice should be reviewed thoroughly before a decision is reached. While the exact variations vary from country, the main types of structure tend to commonly include sole proprietorship, partnership, and limited company structures.

Sole Proprietor

The most basic business structure is the sole proprietorship. The operator can remain self-employed, control all of the decisions, and take in all of the profits. Working as a sole proprietor is simple because large amounts of documents or overheads are not required. The self-employed proprietor has to sign up with the relevant tax authority in their country and complete regular self-assessment tax forms. Business and accounting audits are often not required.

As a business grows, some people find that this structure has too many restrictions and they want to shed some burdens and share the responsibilities. Being a sole proprietor has various risks, for instance, since liability is not limited, it can potentially jeopardize the owners personal assets.


A partnership is made up of two or more individuals who start a business together with the intent of creating a profit. This way, the risks, obligations, profits, and costs are split equally. As with a sole proprietor setup, each partner has to register as self-employed. Even though no legal requirement exists for the use of a contract, it’s a wise idea to draw up a legal partnership agreement so each person knows his or her role.

Again, depending where you live there are different types of partnership structures including standard, limited, and limited liability. It is important to know how each type is different and functions in different situations in your own country. Some may offer protection of personal assets in the event of business problems.

Limited Company

Unlike sole proprietor and partnership structures, an individual legal entity is given to a limited company. As is suggested by the title, this limits liability because the owners personal assets are distinguished from the company’s assets. However, a deal of paperwork and formality is required when setting up this type of company that takes time and money.

People who have questions or concerns about a business structure should obtain legal and professional advice. There are pros and cons for each type that depend on the owners condition and objectives. Those who need to know more information about legal requirements or change the business structure should choose a solicitor who is experienced in commercial law.

James writes for and several other business websites. You can read more on smallbusinesswizardry’s business structure page.

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