different business structures and their advantages

Different Business Structures And Their Advantages

Linkilaw Business Structures

There are a few different types of business structures. No doubt, you’ve heard of some of them but you’re probably feeling a little confused about what kind of structure you should register for your company and what the advantages of each type are.

This is no easy decision either because the type of business you register is one of the most important decisions you can make for your business.

Our ambition with this blog post is to set the record straight. After reading this post, you’ll know what each of the different business structures are and their advantages.

 

Sole Proprietorship

 

This is the simplest type of business structure regarding taxes, bureaucracy, and everything else. It’s inexpensive and the easiest of all structures to form.

 

If you’re planning to be the sole business owner and run and work the business alone, then this is the kind of business structure you need. You can always change it later on once you start to grow your revenue and need to scale the business.

 

The most notable advantage of this structure are taxes. Taxes are easy and can be logged on your personal tax return. There is no flat tax rate unlike when you have a company or corporation structure. Taxes will be determined based on how much you earn each year.

 

Company

 

This is commonly referred to as an LLC (Limited Liability Company). It’s arguably the most complex type of business structure due to the additional reporting requirements and bureaucracy in general. There are also administration fees that need to be considered when forming this business structure.

 

The biggest distinguishing feature of this business structure is that it’s considered a separate legal entity. In fact, this feature is arguably the biggest advantage of this business structure. As an LLC, you can limit your personal liability for any losses or company debts.

 

This makes it ideal if you think that you’re running a business that could be considered dangerous or unstable. Also, if you’re worried about racking up large debts then this structure is ideal because your personal liability will be limited.

 

If personal liability is something that is a big concern for you and you expect to make a decent amount of profit each year, then an LLC is the business structure for you.

 

Partnerships

 

This type of business structure is ideal when there is more than one owner or even several owners. This is also a simple business structure to set up, much like a sole proprietorship in its ease and the inexpensive cost.

 

Unlike a company, there is no separate legal entity with this business type. Each person who is registered as an owner of the business is required to pay personal taxes on their income and there is joint liability for any debts or cases where the company is sued.

 

So what are the advantages? They are basically the same as that of a sole proprietorship. Taxes are easy for reporting. There is limited bureaucracy to deal with. No complex structures to deal with, and it’s easy to set up and operate.

 

You may be wondering why you’d bother registering a partnership if it’s so similar to a sole proprietorship? You would do so only if you wanted to register more than one person as an owner of the business.

 

Limited Partnerships

 

The biggest differences between this and a general type of business partnership are the liabilities and tax obligations. A limited partnership still has more than one owner of the business and they will all share profits of the business between each other, and pay tax on these profits.

 

There are more responsibilities and reporting obligations with this type of business structure such as tax reporting and registering with certain government bodies like the Companies House.

 

The main advantage with this type of partnership is that there is a degree of limited liability much like that of an LLC. However, it is structured a little differently because there is more than one owner. For example, each of the owners needs to bear specific responsibilities and debt liabilities for the business, but no owners will bear any personal liability for debts or lawsuits.

This is kept strictly separate as a distinct legal entity.

Final Words On Different Business Structures And Their Advantages

Finally, the four different business structures are:

  • Sole proprietorship
  • Company
  • Partnerships
  • Limited partnerships

Each has its own advantages and disadvantages. If you’re still feeling confused about what business structure is best for you then simply get in touch with one of our legal experts.

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