example of legal structure in business plan

How to Choose the Best Legal Structure for Your Business

Table of contents.

Your business’s legal structure has many ramifications. It can determine how much liability your company faces during lawsuits. It can put up a barrier between your personal and business taxes – or ensure this barrier doesn’t exist. It can also determine how often your board of directors must file paperwork – or if you even need a board. [Related article: What to Do if Your Business Gets Sued ]

We’ll explore business legal structures and how to choose the right structure for your organization. 

What is a business legal structure?

A business legal structure, also known as a business entity, is a government classification that regulates certain aspects of your business. On a federal level, your business legal structure determines your tax burden. On a state level, it can have liability ramifications.

Why is a business legal structure important?

Choosing the right business structure from the start is among the most crucial decisions you can make. Here are some factors to consider:

• Taxes: Sole proprietors, partnership owners and S corporation owners categorize their business income as personal income. C corporation income is business income separate from an owner’s personal income. Given the different tax rates for business and personal incomes, your structure choice can significantly impact your tax burden.
• Liability: Limited liability company (LLC) structures can protect your personal assets in the event of a lawsuit. That said, the federal government does not recognize LLC structures; they exist only on a state level. C corporations are a federal business structure that includes the liability protection of LLCs.
• Paperwork: Each business legal structure has unique tax forms. Additionally, if you structure your company as a corporation, you’ll need to submit articles of incorporation and regularly file certain government reports. If you start a business partnership and do business under a fictitious name, you’ll need to file special paperwork for that as well.
• Hierarchy: Corporations must have a board of directors. In certain states, this board must meet a certain number of times per year. Corporate hierarchies also prevent business closure if an owner transfers shares or exits the company, or when a founder dies . Other structures lack this closure protection.
• Registration: A business legal structure is also a prerequisite for registering your business in your state. You can’t apply for an employer identification number (EIN) or all your necessary licenses and permits without a business structure.
• Fundraising: Your structure can also block you from raising funds in certain ways. For example, sole proprietorships generally can’t offer stocks. That right is primarily reserved for corporations.
• Potential consequences for choosing the wrong structure: Your initial choice of business structure is crucial, although you can change your business structure in the future. However, changing your business structure can be a disorganized, confusing process that can lead to tax consequences and the unintended dissolution of your business. 

If you have to expand your business to another state , you won’t have to create a new company or structure, but you may have to register it as a “foreign entity.”

Types of business structures

The most common business entity types are sole proprietorships, partnerships, limited liability companies, corporations and cooperatives. Here’s more about each type of legal structure.

Sole proprietorship

A sole proprietorship is the simplest business entity. When you set up a sole proprietorship , one person is responsible for all a company’s profits and debts.

“If you want to be your own boss and run a business from home without a physical storefront, a sole proprietorship allows you to be in complete control,” said Deborah Sweeney, vice president and general manager of business acquisitions at Deluxe Corp. “This entity does not offer the separation or protection of personal and professional assets, which could prove to become an issue later on as your business grows and more aspects hold you liable.”

Proprietorship costs vary by market. Generally, early expenses will include state and federal fees, taxes, business equipment leases , office space, banking fees, and any professional services your business contracts. Some examples of these businesses are freelance writers, tutors, bookkeepers , cleaning service providers and babysitters.

A sole proprietorship business structure has several advantages.

• Easy setup: A sole proprietorship is the simplest legal structure to set up. If you – and only you – own your business, this might be the best structure. There is very little paperwork since you have no partners or executive boards.
• Low cost: Costs vary by state, but generally, license fees and business taxes are the only fees associated with a proprietorship.
• Tax deduction: Since you and your business are a single entity, you may be eligible for specific business sole proprietor tax deductions , such as a health insurance deduction.
• Easy exit: Forming a proprietorship is easy, and so is ending one. As a single owner, you can dissolve your business at any time with no formal paperwork required. For example, if you start a day care center and wish to fold the business, refrain from operating the day care and advertising your services.

The sole proprietorship is also one of the most common small business legal structures. Many famous companies started as sole proprietorships and eventually grew into multimillion-dollar businesses. These are a few examples:

• Marriott Hotels

Partnership 

A partnership is owned by two or more individuals. There are two types: a general partnership, where all is shared equally, and a limited partnership, where only one partner has control of operations and the other person (or persons) contributes to and receives part of the profits. Partnerships can operate as sole proprietorships, where there’s no separation between the partners and the business, or limited liability partnerships (LLPs), depending on the entity’s funding and liability structure.

“This entity is ideal for anyone who wants to go into business with a family member, friend or business partner – like running a restaurant or agency together,” Sweeney said. “A partnership allows the partners to share profits and losses and make decisions together within the business structure. Remember that you will be held liable for the decisions made as well as those actions made by your business partner.”

General partnership costs vary, but this structure is more expensive than a sole proprietorship because an attorney should review your partnership agreement. The attorney’s experience and location can affect the cost. 

A business partnership agreement must be a win-win for both sides to succeed. Google is an excellent example of this. In 1995, co-founders Larry Page and Sergey Brin created a small search engine and turned it into the leading global search engine. The co-founders met at Stanford University while pursuing their doctorates and later left to develop a beta version of their search engine. Soon after, they raised $1 million in funding from investors, and Google began receiving thousands of visitors a day. Having a combined ownership of 11.4% of Google provides them with a total net worth of nearly $226.4 billion.

Business partnerships have many advantages. 

• Easy formation: As with a sole proprietorship, there is little paperwork to file for a business partnership. If your state requires you to operate under a fictitious name ( “doing business as,” or DBA ), you’ll need to file a Certificate of Conducting Business as Partners and draft an Articles of Partnership agreement, both of which have additional fees. You’ll usually need a business license as well.
• Growth potential: You’re more likely to obtain a business loan with more than one owner. Bankers can consider two credit histories rather than one, which can be helpful if you have a less-than-stellar credit score.
• Special taxation: General partnerships must file federal tax Form 1065 and state returns, but they do not usually pay income tax. Both partners report their shared income or loss on their individual income tax returns. For example, if you opened a bakery with a friend and structured the business as a general partnership, you and your friend are co-owners. Each owner brings a certain level of experience and working capital to the business, affecting each partner’s business share and contribution. If you brought the most seed capital for the business, you and your partner may agree that you’ll retain a higher share percentage, making you the majority owner.

Partnerships are one of the most common business structures. These are some examples of successful partnerships:

• Warner Bros.
• Hewlett-Packard
• Ben & Jerry’s

Limited liability company 

A limited liability company (LLC) is a hybrid structure that allows owners, partners or shareholders to limit their personal liabilities while enjoying a partnership’s tax and flexibility benefits. Under an LLC, members are shielded from personal liability for the business’s debts if it can’t be proven that they acted in a negligent or wrongful manner that results in injury to another in carrying out the activities of the business.

“Limited liability companies were created to provide business owners with the liability protection that corporations enjoy while allowing earnings and losses to pass through to the owners as income on their personal tax returns,” said Brian Cairns, CEO of ProStrategix Consulting. “LLCs can have one or more members, and profits and losses do not have to be divided equally among members.”

According to TRUiC , the cost of forming an LLC comprises the state filing fee and can range from $40 to $500, depending on your state. For example, if you file an LLC in New York, you must pay a $200 filing fee and a $9 biennial fee, according to LLC University , and file a biennial statement with the New York Department of State.

Although small businesses can be LLCs, some large businesses choose this legal structure. The structure is typical among accounting, tax, and law firms, but other types of companies also file as LLCs. One example of an LLC is Anheuser-Busch, one of the leaders in the U.S. beer industry. Headquartered in St. Louis, Anheuser-Busch is a wholly owned subsidiary of Anheuser-Busch InBev, a multinational brewing company based in Leuven, Belgium.

Here some other well-known examples of LLCs:

• Hertz Rent-a-Car

To learn more about LLCs, read our LLC tax guide , our comprehensive overview of starting an LLC , and our guide to creating an LLC operating agreement.

Corporation 

The law regards a corporation as separate from its owners, with legal rights independent of its owners. It can sue, be sued, own and sell property, and sell the rights of ownership in the form of stocks. Corporation filing fees vary by state and fee category. 

There are several types of corporations, including C corporations , S corporations, B corporations, closed corporations, and nonprofit corporations.

• C corporations: C corporations, owned by shareholders, are taxed as separate entities. JPMorgan Chase & Co. is a multinational investment bank and financial services holding company listed as a C corporation. Since C corporations allow an unlimited number of investors, many larger companies – including Apple, Bank of America and Amazon – file for this tax status.
• B corporations: B corporations, otherwise known as benefit corporations, are for-profit entities committed to corporate social responsibility and structured to positively impact society. For example, skincare and cosmetics company The Body Shop has proven its long-term commitment to supporting environmental and social movements, resulting in an awarded B corporation status. The Body Shop uses its presence to advocate for permanent change on issues like human trafficking, domestic violence, climate change, deforestation and animal testing in the cosmetic industry.
• Closed corporations: Closed corporations, typically run by a few shareholders, are not publicly traded and benefit from limited liability protection. Closed corporations, sometimes referred to as privately held companies, have more flexibility than publicly traded companies. For example, Hobby Lobby is a closed corporation – a privately held, family-owned business. Stocks associated with Hobby Lobby are not publicly traded; instead, the stocks have been allocated to family members.
• Open corporations: Open corporations are available for trade on a public market. Many well-known companies, including Microsoft and Ford Motor Co., are open corporations. Each corporation has taken ownership of the company and allows anyone to invest.
• Nonprofit corporations: Nonprofit corporations exist to help others in some way and are rewarded by tax exemption. Some examples of nonprofits are the Salvation Army, American Heart Association and American Red Cross. These organizations all focus on something other than turning a profit.

Corporations enjoy several advantages. 

• Limited liability: Stockholders are not personally liable for claims against your corporation; they are liable only for their personal investments.
• Continuity: Corporations are not affected by death or the transferring of shares by their owners. Your business continues to operate indefinitely, which investors, creditors and consumers prefer.
• Capital: It’s much easier to raise large amounts of capital from multiple investors when your business is incorporated.

This structure is ideal for businesses that are further along in their growth, rather than a startup based in a living room. For example, if you’ve started a shoe company and have already named your business, appointed directors and raised capital through shareholders, the next step is to become incorporated. You’re essentially conducting business at a riskier, yet more lucrative, rate. Additionally, your business could file as an S corporation for the tax benefits. Once your business grows to a certain level, it’s likely in your best interest to incorporate it.

These are some popular examples of corporations:

• General Motors
• Exxon Mobil Corp.
• Domino’s Pizza
• JPMorgan Chase

Learn more about how to become a corporation .

Cooperative 

A cooperative (co-op) is owned by the same people it serves. Its offerings benefit the company’s members, also called user-owners, who vote on the organization’s mission and direction and share profits.

Cooperatives offer a couple main advantages.

• Increased funding: Cooperatives may be eligible for federal grants to help them get started.
• Discounts and better service: Cooperatives can leverage their business size, thus obtaining discounts on products and services for their members.

Forming a cooperative is complex and requires you to choose a business name that indicates whether the co-op is a corporation (e.g., Inc. or Ltd.). The filing fee associated with a co-op agreement varies by state. 

An example of a co-op is CHS Inc., a Fortune 100 business owned by U.S. agricultural cooperatives. As the nation’s leading agribusiness cooperative, CHS reported a net income of $422.4 million for fiscal year 2020. These are some other notable examples of co-ops:

• Land O’Lakes
• Navy Federal Credit Union
• Ace Hardware

The five types of business structures are sole proprietorship, partnership, limited liability company, corporation and cooperative. The right structure depends mainly on your business type.

Factors to consider before choosing a business structure

For new businesses that could fall into two or more of these categories, it’s not always easy to decide which structure to choose. Consider your startup’s financial needs, risk and ability to grow. It can be challenging to switch your legal structure after registering your business, so give it careful analysis in the early stages of forming your business. 

Here are some crucial factors to consider as you choose your business’s legal structure. You should also consult a CPA for advice.

Flexibility 

Where is your company headed, and which type of legal structure allows for the growth you envision? Turn to your business plan to review your goals and see which structure best aligns with those objectives. Your entity should support the possibility for growth and change, not hold it back from its potential. [Learn how to write a business plan with this template .]

When it comes to startup and operational complexity, nothing is more straightforward than a sole proprietorship. Register your name, start doing business, report the profits and pay taxes on it as personal income. However, it can be difficult to procure outside funding. Partnerships, on the other hand, require a signed agreement to define the roles and percentages of profits. Corporations and LLCs have various reporting requirements with state governments and the federal government.

A corporation carries the least amount of personal liability since the law holds that it is its own entity. This means creditors and customers can sue the corporation, but they can’t gain access to any personal assets of the officers or shareholders. An LLC offers the same protection but with the tax benefits of a sole proprietorship. Partnerships share the liability between the partners as defined by their partnership agreement.

An owner of an LLC pays taxes just as a sole proprietor does: All profit is considered personal income and taxed accordingly at the end of the year.

“As a small business owner, you want to avoid double taxation in the early stages,” said Jennifer Friedman, principal at Rivetr. “The LLC structure prevents that and makes sure you’re not taxed as a company, but as an individual.”

Individuals in a partnership also claim their share of the profits as personal income. Your accountant may suggest quarterly or biannual advance payments to minimize the effect on your return. 

A corporation files its own tax returns each year, paying taxes on profits after expenses, including payroll. If you pay yourself from the corporation, you will pay personal taxes, such as those for Social Security and Medicare, on your personal return. 

To simplify payroll complexities and taxation issues, consider using a payroll service. Check out our reviews of the best payroll services to find a partner that fits your needs and budget.

If you want sole or primary control of the business and its activities, a sole proprietorship or an LLC might be the best choice. You can negotiate such control in a partnership agreement as well.

A corporation is constructed to have a board of directors that makes the major decisions that guide the company. A single person can control a corporation, especially at its inception, but as it grows, so does the need to operate it as a board-directed entity. Even for a small corporation, the rules intended for larger organizations – such as keeping notes of every major decision that affects the company – still apply.

Capital investment

If you need to obtain outside funding from an investor, venture capitalist or bank, you may be better off establishing a corporation. Corporations have an easier time obtaining outside funding than sole proprietorships.

Corporations can sell shares of stock and secure additional funding for growth, while sole proprietors can obtain funds only through their personal accounts, using their personal credit or taking on partners. An LLC can face similar struggles, although, as its own entity, it’s not always necessary for the owner to use their personal credit or assets.

Licenses, permits and regulations

In addition to legally registering your business entity, you may need specific licenses and permits to operate. Depending on the type of business and its activities, it may need to be licensed at the local, state and federal levels.

“States have different requirements for different business structures,” Friedman said. “Depending on where you set up, there could be different requirements at the municipal level as well. As you choose your structure, understand the state and industry you’re in. It’s not ‘one size fits all,’ and businesses may not be aware of what’s applicable to them.”

The structures discussed here apply only to for-profit businesses. If you’ve done your research and you’re still unsure which business structure is right for you, Friedman advises speaking with a specialist in business law.

Max Freedman and Matt D’Angelo contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.

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Determine the Legal Structure of Your Business

Free Small Business Partnership Contract Template

Radhika Agarwal

13 Min Read

Consider the following situation: You have a brilliant business idea and have planned your business down to the last detail. You are most probably ready to get going. But, hold on. Did you choose a legal business structure? If not, you might want to decide the same before starting out.

Though picking an option amongst several similar-looking ones might seem intimidating at first, picking the right one can save your business from several legal hassles later on.

A proper legal structure decides whether you’ll stay on the good side of the law or not, both literally and figuratively.

Want to know how? Follow along to find out.

Why Does the Legal Structure of a Business Matter?

Against popular belief, a legal structure not just decides the taxes you’ll pay. It also decides the level of risks to your personal assets (your personal savings, car, house, etc.) and your business’s ability to raise funds through loans and investments .

Going through all of your options can help you decide which one fits the best for your business. Moreover, it also helps you finalize if you would need an attorney’s help or not.

So, if you want to get a quick overview of what different types of business structures would look like, read on.

What Are Different Types of Business Structures?

Depending upon the type of ownership, liability on personal assets, and size of the firm, the following legal structures exist in the US:

Sole Proprietorship

Partnership, corporation.

Suppose you plan on selling artwork, retail products, or any product or service under the sun for that matter. Also, you want to go through as little paperwork and legal procedures as possible.

Then a sole proprietorship might be for you. Especially, if you plan on starting the business under your name, you might not have to do any paperwork at all.

Even if you want to have a domain name, registering your domain name would be the only legal procedure you’ll have to go through. And that’s fairly simple and inexpensive.

Hence, a sole proprietorship is a perfect business structure type for those who have a product or service and wish to start selling it right out.

How to form a sole proprietorship?

A sole proprietorship is fairly simple to form. If you have your business idea and plan sorted, you can start your business. Without any official registration or legal framework whatsoever.

Although you should keep in mind that depending upon your industry you might need to get some licenses and permits before you start.

If you are doing business under a name other than your own, you would also have to get a DBA or “ doing business as.”

A sole proprietorship has the following advantages:

• Easy to set up: A sole proprietorship is fairly easy to set up and involves little or no legal hassles.
• Relatively Inexpensive: Setting up a sole proprietorship is the cheapest of all legal structures. All you have to pay is a small fee for a business license and business tax depending upon the location of your business .
• Dissolution is easy: As your business has no stakeholders except you, the dissolution can happen without any disagreements or problems.
• You are the sole benefactor of profits and sole bearer of losses: Your profits belong only to you and you aren’t answerable to anyone for your losses.

Disadvantages

Although sole proprietorship might look like a great option right now, it has its fair share of disadvantages too. Which are as follows:

Liability on your assets: As you and your business are a single legal entity, if things go south your personal assets would be in danger. i.e., you’ll have to pay the debts incurred through your business using your personal assets.

Difficulty in raising capital: It is tougher for sole proprietors to acquire a small business loan or funding. Banks are often less willing to give loans to sole proprietors as they are considered less credible. Also, you cannot sell stocks to generate funds as a sole proprietor.

Limited tax savings: Sole proprietorships do not get tax benefits like corporations do for offering benefits like medical reimbursements and insurances to their employees.

Suppose you are an architect and want to start a firm with your friend who’s an interior designer.

Depending upon the ratio of contributions you make towards the working of the firm you’ll have a certain share in profits and losses of the firm.

It can either be equal or 40 to 60, etc. Also, the size of contributions can be measured both by the size of your investments or the amount of work you provide.

For example, if your friend has invested a higher sum of money but you work more. So, chances are that your ratio in profits would be equivalent.

Apart from that, a partnership is a lot like a sole proprietorship but instead of being the sole owner of the business, you have a partner.

Your partner would have a predetermined share in the profits and losses of your firm.

How to form a partnership?

Just like a sole proprietorship a partnership is fairly simple to form. The only difference is a partnership agreement.

Having a partnership agreement is crucial to this business structure type. A lot of things can go haywire if you don’t work on pre-decided terms and conditions.

Your partnership agreement would decide your share in profits and losses, the type of partnership you have, and what would happen if you decide to dissolve the partnership in the future.

Types of partnership

A partnership can be of the following types:

• General Partnership: In a general partnership, all the partners have an equivalent stake in the business.
• Limited Partnership: A limited partnership has partners who play the role of an investor and have no say in the functioning of the business.
• Joint Venture: A joint venture is a partnership that exists for a limited period or for certain projects.

The advantages of a partnership can be given as follows:

Easy to form: Just like a sole proprietorship, a partnership is fairly easy to form. And requires a very little amount of legal procedures.

Has more growth potential: As a partnership combines the strengths and talents of all partners, it has more growth potential than a sole proprietorship.

Moving forward without a partnership agreement can be disastrous: You shouldn’t move forward without a proper legal agreement . There are a lot of things that can go awry without one. And coming to terms with an agreement that suits everyone is difficult for a lot of partnerships.

Unlimited liability on your personal assets: Just like a sole proprietorship, there’s an unlimited liability on your personal assets. In such structures, you can lose your personal belongings if your business fails.

Difficulty in dissolution: Dissolution is tougher in partnerships as the business has multiple stakeholders.

Consider the following situation: You want to start a business but have a significant amount of personal belongings that you don’t want to risk.

Then an LLC or a limited liability company might be for you. In an LLC you are taxed only on your profits.

Also, there’s no liability on your personal assets as you and your business are separate legal entities.

An LLC is a fairly new legal structure and is good for industries where lawsuits are common. Moreover, an LLC gets the best of both worlds.

Its tax structure is like a partnership and it has a limited liability structure like a corporation.

Also, unlike a corporation, an LLC can be set up by smaller businesses too.

How to form an LLC?

An LLC is formed by creating a separate legal entity for your business. Although it requires way more paperwork than a sole proprietorship or partnership, it is a more secure structure than either of those.

And you might think that a little paperwork is worth the benefits it provides. And it definitely is! You can form an LLC either on your own or with a partner.

The specific amount of paperwork required for an LLC varies from state to state.

Your personal assets would be safe: One of the major benefits of any limited liability structure is that your personal assets remain unaffected if things go downhill.

The tax structure is beneficial: You are only taxed on your profits in an LLC.

An LLC is tougher to set up: It is comparatively more expensive and complicated to set up. You might have to take some legal advice as well before you set up an LLC.

An LLC has to be dissolved within 30 years: An LLC has to be dissolved in 30 years or less, depending upon your pre-decided agreement. Although, all states have different laws regarding the dissolution of an LLC.

Corporations are one of the most commonly known types of business structures out there. They are usually larger, have more employees, and take the highest amount of legal work to set up.

The biggest advantages of a corporation are its limited liability structure and the tax benefits it gets.

Most of the bigger companies and MNCs follow this structure, but if you have a small business it is neither possible nor feasible to have such a structure. Though, a lot of LLCs and partnerships turn into corporations as they grow bigger.

How to set up a corporation?

Setting up a corporation requires the highest amount of paperwork and legal procedures.

You have to register your business name and get your EIN or employer identification number, etc.

Also, depending upon your state and type of corporation the legal procedure for setting up a corporation would differ.

Types of corporation

A corporation can be divided into the following types depending upon its size and functions:

A C Corp is the most common type of corporation out there. Most MNCs follow this structure.

• To form a C Corp you collect fundings and give stocks equivalent to the funding to your investors.Although double taxation might be a problem, C Corp has the highest opportunity of getting investments. Hence, most companies follow this structure when they go public. For example, if you are a corporate firm with a large number of employees and investors, you’ll follow this structure. Microsoft, Intel, and Apple are popular examples of C Corps.

An S Corp is a pass-through tax entity and is usually owned by families or small groups.

• Also, the motive of a C Corp is to grow big and go public, while an S Corp exists to generate profits for its owners. Hence, both the structures fulfill different motives for their owners. An S Corp is very similar to an LLC and is a structure that can be followed by small businesses. A lot of S Corps turn into C Corps as they grow bigger. Apart from that, people choose this structure mainly for the tax benefits it offers.

• For example, organization XYZ works towards the social and economic upliftment of underprivileged children. But at the same time, it has investors to whom it has to send back profits. Hence, XYZ organization is not a non-profit but a B Corp. A B Corp is an excellent way of standing behind a social cause and many states provide tax benefits to such structures. Ben & Jerry’s, Seventh Generation, and Etsy are popular B Corps in the US. If we try to understand this further through the example of Ben and Jerry’s, the company has three main motives- product quality, economic reward, and service to the community. Because Ben and Jerry’s is a for-profit company that stands behind a cause it becomes eligible for its B Corp status.

The most limited possible liability: Corporations give the highest amount of protection to your personal assets. If things go awry, your personal assets will be the safest in this structure.

Corporations have a high potential to raise capital: With the option of selling stocks to get funding and more credibility to get loans, raising capital is fairly easy for corporations.

Taxes are filed separately from personal taxes: As taxes are filed separately from personal taxes in corporations your business becomes eligible for corporate tax breaks.

Difficult to set up: Corporations go through way more procedures, legal or otherwise and are fairly difficult to set up. The structure is also not an ideal one for smaller businesses.

Double taxation: You have to pay taxes on both the earnings of the corporation as well as on the dividend you get from it. This disadvantage mainly holds true for a C Corp.

If you want to work towards a social cause and channel all your energies towards it, a non-profit organization would fit the best for you.

The chief difference between any other legal structure and a non-profit is that a non-profit solely exists for fulfilling a social cause and not for earning profit.

Such organizations get tax-exempt status from the government.

As a nonprofit is run for serving society and for personal values, it does not have any advantages or disadvantages as such.

But you should keep the following things in mind before starting a nonprofit organization :

• Your setup will be similar to that of a corporation: You’ll have to register your business’s name as well as your taxation number as a non-profit to get tax exemptions.
• You should have a solid system in place to collect funds: If you choose this business structure, generating funds to keep your firm going will be a chief priority.

In conclusion, the legal structure of a business plan greatly depends upon the said firm’s function and size. The number of legal formalities you are able and willing to fulfill, the laws of the state your business will function from, and so on.

Also, getting legal advice from an attorney while deciding your structure can be of great help for your business. A little expense and effort, in the beginning, can take your business a long way in the future.

Your legal structure would impact a lot of aspects of your business. Hence, you should choose it wisely.

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About the Author

Radhika is an economics graduate and likes to read about every subject and idea she comes across. Apart from that she can discuss her favorite books to lengths( to the point you\'ll start feeling a little annoyed) and spends most of her free time on Google word coach.

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Legal Business Structure

Throughout most parts of world, three predominant main types of legal business forms are used to run small business organisations..

Countries choose different ways of organising the legal structure of business life. Therefore, you have to contact your local authority in order to find out how your country organises the business society.

• Read specific about United States
• Read specific about United Kingdom

Three main legal business forms

Throughout most parts of world, three predominant main types of legal forms are used to run small business organisations. These business forms are as follows:

• Sole proprietorship - where generally only one person funds the business activities  
• Partnerships - where two or more people band together to finance or run a venture  
• Corporations/limited companies - where it is possible for a few friends/family members or up to many thousands to subscribe for a share in business ownership

Legal business form: Sole proprietorship

Legal business form: partnerships, legal business form: limited liability companies.

On This Page

Sole proprietorship

Partnerships, limited liability company, corporations, making your business legally compliant.

Types of Business Structures Explained

The choice you make about what type of business structure is appropriate for your company will affect how much you pay in taxes, the level of risk or liability to your personal assets (your house, your savings), and even your ability to raise money from angel investors or venture capitalists.

So, the structure you choose is significant.

This guide will explain the basics of common business structures, but we can’t tell you exactly which structure you should choose—if you need that kind of advice, you should consult a lawyer or an accountant.

The simplest business structure is the sole proprietorship. If you don’t create a separate legal entity, your business is a sole proprietorship. 

The main advantage of the sole proprietorship is that it’s relatively simple and inexpensive. The disadvantage is that it doesn’t create a legal separation between you and your personal assets and business assets. If you’re sued or your business folds—your personal assets are fair game for creditors and in terms of legal liability.

Who is a sole proprietorship for?

A sole proprietorship is ideal for self-employed individuals like personal trainers offering individual coaching or artists selling unique items on platforms like Etsy.

Key considerations

• Cost-effective setup: The primary expense is usually the DBA (“doing business as”) registration. Some states may require public notice, like a newspaper ad. Generally, the total cost is below $100.
• Simplified taxation: Sole proprietorships are “pass-through” tax entities. Profits and losses are reported directly on the owner’s taxes, necessitating only a few additional tax forms if you’re the sole worker.
• Hiring employees is possible: Being a “sole” proprietor doesn’t restrict hiring. If you employ others, tax processes become slightly more intricate.
• Limited ways to raise funding: You can’t sell company stock, limiting fundraising avenues.
• Potential loan difficulties: Banks might hesitate to grant loans to sole proprietorships due to perceived credibility issues.
• Full personal liability: If the business faces debt or legal issues, your personal assets, including your home, car, and savings, are vulnerable.

Dig deeper:

Should you register as a sole proprietorship?

Explore the pros and cons of incorporating as a sole proprietorship.

How sole proprietorships are taxed

Understand how registering as a sole proprietor impacts your taxes.

Still a relatively simple business structure, a partnership involves two or more individuals sharing ownership of their new business. They’ll contribute to the business in some way and share in profits and losses.

Partnerships are harder to describe because they change so much. State laws govern them, but the Uniform Partnership Act has become the law in most states. That act, however, mainly sets the specific partnership agreement as the real legal core of the partnership so that the legal details can vary widely.

Usually, the income or loss from partnerships passes through to the partners without any partnership tax. The agreements can define different levels of risk, which is why you’ll read about some partnerships with general and limited partners, with different levels of risk for each. Your partnership agreement should clearly define what happens if a partner withdraws, buy and sell arrangements for partners and liquidation arrangements if necessary.

What are the types of partnerships?

• General partnership: Assumes equal involvement of all parties in profits, liabilities, and duties. Any intentional imbalance should be specified in the partnership agreement.
• Limited partnership: Suited for partners in an investor role with limited involvement in daily operations. This structure is more complex and less common.
• Joint venture: Designed for a single project or a limited duration, operating similarly to a general partnership.

Who is a partnership for?

A partnership is similar to an extended sole proprietorship and is ideal for two or more individuals wanting to start a business jointly. 

To make the partnership more effective, you and your partners should have skillsets, connections, or other unique benefits that complement each other. 

For example, a personal trainer and nutritionist building an online fitness program. One entrepreneur has experience building an exercise regiment with clients. The other understands how to create balanced meal and supplement recommendations. 

They have unique but complementary knowledge that, when combined, creates a more valuable product/service.

• Partnership agreement: While not mandatory, it’s advisable to draft a partnership agreement, ideally reviewed by legal counsel, to clarify roles and responsibilities, ownership, and what will happen if a partner wants to leave the partnership.
• Tax implications: Partnerships are “pass-through” entities, meaning profits and losses are directly passed to the partners. Refer to the IRS for partnership tax details.
• Additional costs: Since it’s a good idea to have a lawyer look over your partnership agreement, don’t forget to factor in this added expense.
• Trust in partnership: Ensure your partner is trustworthy, as partners share responsibility for business decisions and debts. A well-drafted partnership agreement can prevent future conflicts.

How to create a business partnership agreement

Even if you’re not in an official partnership, you should consider drafting a partnership agreement. Doing so will clearly define rights and responsibilities and help you amicably resolve any disputes.

How partnerships are taxed

Understand how registering as a partnership impacts your taxes.

Plan for changes with a buy-sell agreement

What will you do if you or your partner quits, sells their portion of the business, or passes away?

How to find the right business partner

A partnership is more than a legal structure. It’s a relationship between entrepreneurs who share a passion for an idea and bring unique skill sets. So, how do you find the right person to make your partnership thrive?…

Traits to look for in a business partner

What makes a good business partner? If you’re considering someone with the following traits, you likely have a good fit.

How many partners should you have?

What’s the ideal number of business partners? The right mix of people and skillsets can lead to tremendous business growth. But too many may lead to disaster.

What to do when your business partner is your life partner

Should your significant other be your business partner? Learn your legal options and how to find the right ownership fit for your business and relationship.

Should your business fall on hard times, does the idea of being held personally responsible for all losses sound intimidating?

It’s understandable—plenty of would-be entrepreneurs shudder at the thought of the bank seizing their personal assets should the business go south.

A limited liability corporation (or LLC) is, in some ways, the best of both worlds. It allows for the flexibility of a partnership or sole proprietorship but, as the name suggests, limits the liability of those involved, similar to a corporation. An LLC is usually a lot like an S corporation. It offers a combination of some limitations on legal liability and some favorable tax treatment for profits and transfer of assets.

Who is a limited liability corporation for?

An LLC is ideal for those wary of personal liability in business. If you possess significant personal assets or operate in a lawsuit-prone industry—an LLC safeguards your personal finances. 

• Complexity: While offering more protection, an LLC is harder to establish than a sole proprietorship or partnership.
• Tax benefits: LLCs maintain “pass-through” tax status, meaning you’re taxed only on your profit share, which is reported on personal taxes. 
• Single-member LLCs: Most states allow single-person LLCs, making it a potential alternative to sole proprietorships.

How to form a limited liability company

Interested in forming an LLC? Here are the steps you’ll need to take.

How to create an LLC operating agreement

Set the rules for how your LLC will operate, including the management structure, individual responsibilities, ownership percentage, and other important information.

LLC costs and fees explained

Make sure you’re aware of all the costs and fees associated with forming an LLC.

How LLCs are taxed

Understand how registering as an LLC impacts your taxes.

Shareholders, a more complex legal structure, and more intricate tax requirements are all characteristics of a corporation.

Corporations are either the standard C corporation, the small business S corporation, or the benefit corporation or B corp. The C corporation is the classic legal entity of the vast majority of successful companies in the United States.

Corporations can switch from C to S and back again, but not often. The IRS has strict rules for when and how those switches are made. You’ll almost always want to have your CPA, and in some cases, your attorney, guide you through the legal requirements for switching.

Who is a corporation for?

Corporations are best suited for larger, established businesses with multiple employees, plans for rapid scaling, or intentions to trade or attract significant external investments publicly. A corporation might not be the right choice if you’re a small business owner or work with a small team.

What are the types of corporations?

C corporation.

What we typically think of when we refer to corporations, where all shareholders combine funds and are then given stock in the newly formed business. 

A C corp is a separate tax entity, meaning your business can deduct taxes. It also means that earnings can be taxed twice, as they are concerning your business and your personal taxes if you take income as dividends. However, good tax planning can often minimize the impact of double taxation.

Most lawyers would agree (but verify this with your lawyer who is familiar with your unique business) that the C corporation is the structure that provides the best shielding from personal liability for owners, and provides the best non-tax benefits to owners. Many companies with ambitions of raising major investment capital and eventually going public consider the C corporation.

S corporation

An S corp is similar to a traditional C corporation, with one major difference: Profits and losses can be “passed through” to your personal tax return without being taxed separately first.

In practical terms, the owners can take their profits home without first paying the corporation’s separate tax on profits. In most states, an S corporation is owned by a limited number of private owners (25 is a common maximum), and only individuals (not corporations) can hold stock in S corporations.

To become an S corp, you must first set your business up as a corporation within your state and then request S corp status. The IRS instructions for Form 2553 (which you’ll need to file to become an S corp) can help you determine if you qualify.

B corporation

Does your company have a dedicated social mission, a good cause built into its foundation that you’d like to continue furthering as your company grows? If so, you might consider becoming a B corporation, which stands for “benefit corporation.” 

However, the name is a bit misleading; a B corp isn’t an entirely different structure than a regular C corporation. It’s a C corp vetted and approved for B corp status. Some states give tax breaks to B corps, and it’s a great way to stand behind a cause.

So, why would you choose a B corp over a nonprofit? The biggest difference is in ownership—with a nonprofit, no owners or shareholders exist. A B corp, which is still a type of corporation, still has shareholders who own the company. So, a B corp has a social mission but is still a for-profit company (as opposed to a nonprofit) with an end goal of returning profits to the shareholders.

• Liability: Corporations offer the most protection for personal assets.
• Capital raising: The ability to sell stock enhances investment potential.
• Taxation: Corporate taxes are separate (except for S corps), but the structure can lead to double taxation, especially for C corporations.
• Complexity: Establishing a corporation is more intricate than other business structures, requiring more paperwork and formalities.

How to form a corporation

Follow these ten steps to incorporate as a C, S, or B corporation.

How are corporations taxed?

Understand how registering as a corporation impacts your taxes.

S corporation basics

Should you choose an S corp as the legal structure for your business? Learn the basics and what alternatives are available.

B corporation basics

Should you choose a B corp as the legal structure for your business? Check out this detailed overview of how this business entity functions and the pros and cons you’ll contend with.

A nonprofit is a “not-for-profit” business structure, meaning the business does not exist to generate revenue for shareholders, but rather funnel business revenue into a social mission, cause, or purpose.

Who is a nonprofit for?

Nonprofits cater to those with missions centered on charitable, educational, scientific, or religious purposes. Examples include homeless shelters, conservation groups, arts centers, and educational institutions.

What’s the difference between a nonprofit and a cooperative?

Like a nonprofit, a cooperative is a business with a social mission that doesn’t divide income between shareholders but toward a cause or purpose. However, while some states view nonprofits and cooperatives as the same, a cooperative differs because the members own it, referred to as “user-owners.”

If you plan on organizing your business to be democratically owned, looking into the cooperative business structure might be a good idea to look into the cooperative business structure .

• Complex setup: Establishing a nonprofit requires steps similar to forming a corporation, including filing articles of incorporation, creating bylaws, and organizing board meetings.
• Fundraising will be your main priority: Nonprofits generally rely on fundraising and grants to keep a flow of income into their business.

What is a nonprofit corporation and how to start one

Learn the basics of setting up a nonprofit corporation.

How to earn income as a nonprofit corporation

Learn how related and unrelated business activities can generate revenue for a nonprofit corporation.

Choosing a business structure is the first legal step you’ll take. Your choice will impact your taxes, fundraising, and personal liability. 

Tim Berry, founder of Palo Alto Software (maker of Bplans) reminds small business and startup founders that choosing a business entity or structure is something to take seriously. He says:

“Make sure you know which legal steps you must take to be in business. I’m not an attorney, and I don’t give legal advice. I strongly recommend working with an attorney to review the details of your company’s legal establishment and licensing. The trade-offs involved in incorporation versus partnership versus other structures are significant. Small problems developed at the early stages of a new business can become horrendous problems later on. In this regard, the cost of simple legal advice is almost always worth it. Don’t skimp on legal costs.”

TLDR: Take time, carefully weigh your options, and consult a legal professional.

Once you’ve chosen, check off the remaining legal requirements to start a business. While you can complete most of these in any order, here are a few suggestions.

• Apply for a federal and state tax ID
• Obtain licenses and permits
• Register your business name

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Business structure FAQ

What are the types of business structures?

What is a good business structure?

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How do you set up a business structure?

What is the most popular business structure?

Which business structure is easiest to start?

What is the difference between an LLC and a C Corp?

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What is the difference between a sole proprietorship and LLC?

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4 Most Common Business Legal Structures

What legal structure is best for your business.

One of the first decisions you’ll need to make when you start a business is to determine the correct legal structure for your company.

But how do you decide which business legal structure is right for your company?

You will need professional legal guidance to make this decision, but the first step is learning what the different structures are, depending on your situation, your long-term goals, and your preferences.

4 Types of Legal Structures for Business:

We’ve outlined the four most common business legal structures with considerations for each below, including tax, liability, and formation of each. Ready?

1. Sole Proprietorship

A type of business entity that is owned and run by one individual – there is no legal distinction between the owner and the business. Sole Proprietorships are the most common form of legal structure for small businesses.

Taxation: A sole Proprietorship has pass-through taxation. The business itself does not file a tax return. Instead, the income (or loss) passes through and is reported on the owner’s personal tax return through a Schedule C (Form 1040).

Liability: The Owner of the sole proprietorship has unlimited personal liability for any liabilities the business incurs. You can mitigate this risk with insurance and sound contracts.

Formation: The sole proprietorship is the simplest way of doing business. The costs to create a sole proprietorship are very low and very little formality is required.

Pros of a Sole Proprietorship: • Easy and fairly cheap to establish. • Owner has absolute control over the business.

Cons of a Sole Proprietorship: • Owner has unlimited personal exposure to risk, as the owner is responsible for all liabilities incurred by the business. • Investors typically would not invest in a business organized as a sole proprietorship.

2. General Partnership

An association between two or more people in business seeking a profit. Partnerships can be created with little formality, but because more than one person is involved, a partnership agreement should be created. A partnership agreement stipulates the terms of the partnership by formalizing rules for profit/loss sharing, ownership percentages, dissolution terms, and management rights among many other things.

Taxation: A partnership is a tax-reporting entity, not a tax paying entity. A partnership must file an annual information return (Form 1065) with the IRS to report income and losses from operations, but it does not pay federal income tax. Profits and Losses are passed through to the owners based on their profit sharing percentages outlined in the Partnership Agreement. Each partner pays taxes on their share of the profit/loss.

Liability: Owners typically have unlimited personal liability. Each partner is jointly liable for the partnerships obligations.

Formation: Usually easy to create, but it is important to have an attorney create the partnership agreement. Partnership agreements establish the terms of the partnership and typically cover topics such as:

• Capital Contributions • Distributions of profits/losses • Management Responsibilities • Bookkeeping • Banking • Dissolution

Pros of General Partnerships: • Fairly easy to create and maintain. • Profits and losses are passed through to the owner’s personal tax returns.

Cons of General Partnerships: • Partners are personally liable for business debt and liabilities. • Can lead to management and oversight issues absent a partnership agreement.

3. Limited Liability Company (LLC)

A hybrid between a corporation, general partnership, and sole proprietorship. Owners of an LLC are called members. Members may include individuals, corporations, other LLCs and foreign entities. Most states permit an LLC with only one owner, called a “single member LLC.”

Taxation: An LLC is considered a “pass through entity” for tax purposes. This means, business income passes through the business to LLC members who report their share of profits or losses on their individual income tax returns. The LLC entity is only required to file an informational tax return, similar in character to the general partnership. Single member LLCs are allowed to report business expenses on Form 1040 Schedule C, E, or F. LLCs with more than one member usually file a partnership return Form 1065.

Liability: LLC members are protected from personal liability for business debts and claims, a feature known as “limited liability.” If a business with limited liability owes money or faces a lawsuit, only the assets of the business itself are at risk. Creditors can’t reach personal assets of the LLC members, except in cases of fraud or illegality. LLC members should exercise caution so that they don’t “pierce the corporate veil,” which would expose members to personal liability. For example, LLC owners should not use a personal checking account for business purposes, and should always use the LLC business name (rather than owner’s individual names) when working with customers.

Formation: To form an LLC, you must pay a filing fee ($100-$800) and must have articles of organization when at the time the entity is established. Operating agreements are highly recommended, but not required by all states. Much like a partnership agreement or corporate bylaws, the LLC operating agreement sets out rules for ownership and operation of business. A standard operating agreement includes:

• Ownership interest for each member • Member rights and responsibilities • Member voting power • Profit & Loss allocation • Management Structure • Buy-Sell provision

Pros of LLC Structure: • Owners have limited liability, meaning that the entity is responsible for all liabilities the company incurs. • Profits and losses of company are passed on to the member and are only taxed at the individual level. • Allows an unlimited number of members

Cons of LLC Structure: • Often subject to additional taxes at the state level. • Each member’s share of profit represents taxable income, even if the profit wasn’t distributed.

4. Corporations (C-Corp and S-Corp)

Corporations are the most complex business structure. A corporation is a legal entity that is separate and independent from the people who own or run the corporation, namely shareholders. A corporation has the ability to enter into contracts separate from that of the shareholders, but it also has certain responsibilities such as the payment of taxes. Corporations are generally more appropriate for larger established companies with multiple employees or when other factors apply (i.e. corporation sells a product or provides a service that could expose the business to sizable liability). Ownership is designated by issuing shares of stock.

The two types of corporations are C-Corps and S-Corps. The major difference among the two types of corporations is the tax treatment of the two entities:

Taxation (C-Corp): For federal income tax purposes, a C-Corp is recognized as a separate taxpaying entity, thus the entity files its own tax return (Form 1120). A c-corporation is subject to corporate income tax on any corporate profits (entity pays taxes). Shareholders pay personal income tax on the corporate profits distributed by the corporation to the owners. As a result, C-corps are subject to “double taxation.”

Taxation (S-corp) : S-Corps elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. However, the entity is required to report income, losses, gains, deductions, credit, etc. on Form 1120S. Shareholders of S corporations report the corporation’s income and losses on their personal tax returns pay federal income tax at their individual tax rates. Thus, S- Corps avoid double taxation.

Liability: A corporation is a legal entity that is “immortal,” meaning it does not terminate upon the shareholders death. Corporation shareholders have limited liability as they are not personally liable for debts and obligations incurred by the company. Shareholders cannot lose more money than the amount they invested in the corporation. Similar to the provisions of an LLC, shareholders should be careful not to “pierce the corporate veil.” Personal checking accounts should not be used for business purposes, and the corporate name should always be used when interacting with customers.

Formation: Corporations are more complex entities to create, have more legal and accounting requirements and are more complex to operate than sole proprietorships, partnerships, or LLCs. One of the major disadvantages of a corporation is the high level of governance and oversight by the board of directors. Often times, this prolongs the decision making when multiple shareholders or investors are involved.

Pros of Corporations: • Corporate shareholders have limited liability, meaning the entity is responsible for all liabilities the company incurs. • Usually a favorable formation for investors.

Cons of Corporations: • The process to establish the business is more rigorous and costly. • Earnings are subject to “double taxation”, meaning that earnings are taxed at the entity level and the individual level upon distribution to shareholders. • High level of governance and oversight by the board of directors.

Want more info on which business legal structure might work best for your business?

Here are two additional resources:

IRS Business Structures Overview

SBA Choose Your Business Structure

• NOTE: Determining the legal structure for your business is an incredibly important decision that requires professional legal guidance. The information and reference materials contained here are intended solely for the general information of the reader. It is not intended to take the place of professional legal guidance.

Want to know the other steps for starting a business? Check out our blog post “ 11 Steps to Start a Business in Tennessee or Alabama .”

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How to Determine the Legal Structure of Your Business

Digital library > building and inspiring an organization > forms of business, "how to determine the legal structure of your business".

Should your business be a proprietorship, partnership, limited partnership, C corporation, S corporation, or LLC? Be informed to help determine the best business structure for you.

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How to write the structure and ownership section of your business plan?

Business planning is vital to the success of any entrepreneur because it helps them secure funding and find competent business partners. The document itself contains a variety of key sections, including the presentation of the legal structure and ownership of the business.

This section details the legal structure of your business and helps interested parties such as lenders and investors understand who they will be doing business with if they decide to go ahead and finance your company.

In this guide, we’ll look at the objective of the structure and ownership section, deepdive into the information you should include, and cover the ideal length. We’ll also assess the tools that can help you write your business plan.

Ready? Let’s get started!

In this guide:

What is the objective of the structure and ownership section of your business plan?

What information should i include when presenting the legal structure and ownership of my company in my business plan.

• How long should the structure and ownership section of your business plan be?
• Example of structure and ownership in a business plan

What tools should I use to write my business plan?

The objective of this section is to provide potential investors, lenders, and strategic partners with a clear and transparent view of your business's legal form, ownership distribution, and registration details. 

It aims to build credibility and trust by showcasing your commitment to openness and compliance with regulations. Let's take a look at some of the key objectives:

Communicate the legal form and registration details

• You should explicitly state your business's legal form. For example, your business might be corporation, sole proprietorship, or limited liability company (LLC). 
• Clearly explaining your chosen legal form helps stakeholders understand your entity's liability, taxation, and management implications.
• It is also essential to disclose where your company is registered. This information is vital as it provides clarity on the jurisdiction under which your business operates. 
• It also helps investors and lenders assess any legal and regulatory implications specific to the location of registration.

Identify shareholders

• Potential investors and lenders need to know who owns the company and the percentage of ownership each party holds. 
• By providing this information, you instill confidence in your business and help identify what needs to be verified as part of Know Your Customer (KYC) and Anti-Money Laundering (ALM) checks down the line.

Transparency is the cornerstone of credibility for businesses. By openly presenting the legal structure and ownership, you signal to potential investors that your business operates with integrity and adherence to regulations. 

Notably, anti-money laundering regulations require investors to verify the identity of all shareholders before committing funds. By providing a clear picture of the parties involved, you can facilitate this process and build trust with investors.

Venture capitalists (VC) firms and angel investors in particular, may have specific criteria such as location and ownership mandates governing the companies they can finance. Being transparent about your company's structure and ownership enables potential investors to assess whether your business aligns with their investment preferences and requirements.

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The structure and ownership subsection arrives quite early in your business plan as it is the first part of the company section which is the second section of the document (after the executive summary) if you are following a standard business plan outline .

At this stage, the reader is still in the process of getting familiar with your business, and this section serves as a crucial foundation for potential investors and partners and helps them understand the core aspects of your business’s structure.

Here's what you should include:

Company registration details and registered office address

Provide information about when and where your company was registered and its registration number. This enables readers to understand the jurisdiction under which your business is operating and helps verify its legal existence.

Also, mention the registration date to showcase the company's longevity or recent establishment.

Include the registered office address of your company. This is the official address where the company can be contacted, and legal notices can be served. Providing this address demonstrates your commitment to compliance and transparency.

The information above needs to repeated for each subsidiary or joint venture owned by your business in order to provide a clear map of the coporate structure.

Overview of ownership

Offer a concise overview of the ownership structure of the company. Identify the shareholders, and specify their ownership percentages or shares. 

If there are numerous shareholders, list individuals or entities owning 5% or more, and highlight those with a controlling interest in the company or on the board.

If the business is controlled by another business, such as a holding company for example, it is also useful to explain who controls that business as well.

Roles and responsibilities of shareholders

In case of multiple shareholders, explain their respective roles and responsibilities within the organization. 

Differentiate between passive investors, board members, and executive or non-executive directors. 

Shareholders' agreement (if applicable)

If the business plan is presented for investment purposes, it is useful to clarify if a shareholders' agreement is in place between the existing investors. 

This agreement outlines the rights and obligations of shareholders and adds an extra layer of legal protection for investors and shareholders.

Expertise of co-shareholders

Highlight any shareholders who contribute more than just financial capital to the company. 

If, for instance, a shareholder is an industry expert and brings valuable advice, contacts, and credibility, emphasize this aspect. 

Doing so demonstrates the added value these shareholders bring to the business.

Group or franchise structure

If your company operates as part of a group or franchise, provide this information for each individual company receiving funds. 

Clarify the relationship between the main company and the individual entities within the group and their respective legal structures.

Addressing geographical restrictions

If some investors have geographical restrictions on their investments, clearly indicate whether your company meets their eligibility criteria. 

This helps investors quickly assess whether your business aligns with their investment mandates or not.

How long should the structure and ownership section of your business plan be? 

The length of your business plan's structure and ownership section requires a delicate balance. 

While a general rule of thumb suggests that it should be about 2 to 3 paragraphs, the actual length depends on several factors, including the complexity of your corporate structure and the number of shareholders involved.

The complexity of your corporate structure 

• A concise presentation may be sufficient if your company's legal structure is relatively straightforward, with a single owner or a small number of co-founders. 
• In such cases, aim to provide the necessary information without overwhelming the reader with unnecessary details. A paragraph or two may convey the key points effectively, ensuring clarity and brevity. 
• However, if you have a complex business structure, aim to provide details about members who play a key role in business continuity and profitability. 

The number of shareholders involved

• If your business involves multiple shareholders, each with significant ownership percentages or unique roles, you may need to dedicate more space to this section. 
• Do this by providing a comprehensive breakdown of ownership distribution and outlining each shareholder's contributions. 
• This may take up more space as you need to add additional information. However, if you have a pretty straightforward ownership structure, a paragraph or two will be sufficient enough.

Regardless of the complexity, striking the right balance between providing sufficient detail and avoiding excessive technical jargon is crucial. The structure and ownership section should be reader-friendly, allowing potential investors and stakeholders to understand the core aspects of your company without feeling overwhelmed by intricate legalities.

Repetition can dilute the impact of your message and unnecessarily lengthen the section. Ensure that you don't reiterate information that has already been covered in other parts of the business plan. Instead, focus on providing unique insights and details that enhance the reader's understanding of your corporate structure and ownership.

When crafting this section, prioritize the most critical points that investors or partners need to know about your company's structure and ownership. 

Focus on aspects that directly impact decision-making, such as the majority shareholder's influence, board composition, different classes of shares in issue, or any unique arrangements that set your business apart.

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Example of structure and ownership section in a business plan 

Below is an example of what the structure and ownership section of your business plan might look like. As you can see, it is part of the overall company section and precedes the location and management team subsections.

The structure and ownership section of a business plan provides a detailed overview of how your company is organized and who holds ownership stakes in the business.

This example was taken from one of  our business plan templates .

In this section, we will review three solutions for creating a business plan for your business: using Word and Excel, hiring a consultant to write the business plan, and utilizing an online business plan software.

Create your business plan using Word and Excel

This is the old-fashioned way of creating a business plan (1990s style) and using Word and Excel has both pros and cons.

On the one hand, using either of these two programs is cheap and they are widely available. 

However, creating an error-free financial forecast with Excel is only possible if you have expertise in accounting and financial modeling.

Because of that investors and lenders might not trust the accuracy of your forecast unless you have a degree in finance or accounting.

Also, writing a business plan using Word means starting from scratch and formatting the document yourself once written - a process that can be quite tedious - especially when the numbers change and you need to manually update all the tables and text.

Ultimately, it's up to the business owner to decide which program is right for them and whether they have the expertise or resources needed to make Excel work. 

Hire a consultant to write your business plan

Outsourcing your business plan to a consultant can be a viable option, but it also presents certain drawbacks. 

On the plus side, consultants are experienced in writing business plans and adept at creating financial forecasts without errors. Furthermore, hiring a consultant can save you time and allow you to focus on the day-to-day operations of your business.

However, hiring consultants is expensive: budget at least £1.5k ($2.0k) for a complete business plan, more if you need to make changes after the initial version (which happens frequently after the first meetings with lenders).

For these reasons, outsourcing the plan to a consultant or accountant should be considered carefully, weighing both the advantages and disadvantages of hiring outside help.

Ultimately, it may be the right decision for some businesses, while others may find it beneficial to write their own business plan using an online software.

Use an online business plan software for your business plan

Another alternative is to use online business plan software .

There are several advantages to using specialized software:

• You are guided through the writing process by detailed instructions and examples for each part of the plan
• You can be inspired by already written business plan templates
• You can easily make your financial forecast by letting the software take care of the financial calculations for you without errors
• You get a professional document, formatted and ready to be sent to your bank
• The software will enable you to easily track your actual financial performance against your forecast and update your forecast as time goes by

If you're interested in using this type of solution, you can try our software for free by signing up here .

To sum it up, a well-written structure and ownership subsection is key to ensuring that the reader is clear on who controls the business, and whether or not it fits their investment criterias.

Also on The Business Plan Shop

• How to do a market analysis for a business plan
• How to present your management team in your business plan?
• Where to write the conclusion of your business plan?

Know someone who needs help writing-up their business plan? Share this article with them and help them out!

Founder & CEO at The Business Plan Shop Ltd

Guillaume Le Brouster is a seasoned entrepreneur and financier.

Guillaume has been an entrepreneur for more than a decade and has first-hand experience of starting, running, and growing a successful business.

Prior to being a business owner, Guillaume worked in investment banking and private equity, where he spent most of his time creating complex financial forecasts, writing business plans, and analysing financial statements to make financing and investment decisions.

Guillaume holds a Master's Degree in Finance from ESCP Business School and a Bachelor of Science in Business & Management from Paris Dauphine University.

Published on 08 Aug 2023 , last update on 24 Aug 2023 , as per our editorial standards .

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Starting a business is a big decision that comes with a lot of challenges. The first challenge business owners face is deciding the ownership structure they want to use. This structure will be heavily influenced by the type of business ownership employed. Each business ownership type has its unique advantages and disadvantages…

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Starting a business is a big decision that comes with a lot of challenges. The first challenge business owners face is deciding the ownership structure they want to use. This structure will be heavily influenced by the type of business ownership employed.

Each business ownership type has its unique advantages and disadvantages which contribute to the decision-making process. Understanding ownership is essential before setting up your own business. Let's take a closer look.

What is business ownership?

Business ownership provides a management framework for business owners. Thus, understanding the various types of ownership is essential to these folks.

Business ownership refers to legal control over a business. It gives the owner the legal right to make certain business decisions.

The legal structure of a business is crucial in its ramifications, so it must be understood and planned out carefully. The decisions involved impact daily operations, taxation, and the level of risk.

The legal structure is the framework through which a business is defined in a particular jurisdiction.

Types of business ownership structures

There are six basic types of business ownership structures:

Sole Proprietorship

Partnership

Private limited companies (LTD)

Public Limited Companies, PLC

Not-for-profit organisation

• Cooperatives.

Let's examine the structures in a bit more detail, along with some advantages and disadvantages of each.

1. Sole proprietorship

This is the most common form of business ownership and the simplest. Sole proprietorship means that a business is owned and directed by one individual. This individual owns all the rights to run the business however they deem fit. In other words, if you start a brand new business, and you are the only person owning and running the business, it is considered a sole proprietorship ( sole trader ).

Advantages of a sole proprietorship

All income earned belongs to the sole proprietor, who also owns all business assets.

It is the simplest of all the business structures to set up.

It provides the proprietor with flexibility in running the business.

The sole proprietor gets to make all business decisions.

Absence of corporate tax.

Disadvantages of a sole proprietorship

The proprietor bears personal responsibility for all business debt and losses.

There is little to differentiate between personal and business income.

Raising capital is the responsibility of the sole proprietor.

2. Partnership

This business ownership structure means two or more people own a business. Partnerships are of two types, namely:

General partnership - this involves an investment from all partners, and all partners bear the responsibility for any debt incurred by the business. The partnership usually doesn’t need a formal agreement as it could be verbal between business owners.

Limited Liability Partnership, LLP - LLP provides protection for each partner against debt incurred by the other partner(s). It usually requires a formal agreement between partners to protect each from the actions of the others.

Advantages of partnership

Business capital can be easily generated from each partner's resources.

Profits from services offered by the business are shared between partners.

Ownership and decision making are shared by partners .

Greater capacity for loans.

Disadvantages of partnership

Partners are responsible for losses or debt incurred by the business.

The risk of friction among partners can be high.

Partners can be held liable for the actions of other partners.

3. Private limited company/LTD

A private limited company - also referred to as LTD - is an incorporated business entity that is privately held and controlled. The ownership of the business is divided by shares in the company. Those who own the shares are known as shareholders.

This type of business ownership provides limited liability to the owners. Limited liability provides the shareholders' personal assets with protection from liabilities incurred by the business.

Advantages of private limited companies

Private limited companies provide limited liability to their shareholders.

Shares cannot be sold to the public (the current owners decide to whom they will sell them). Therefore the company is protected from loss of ownership and control.

Due to incorporation, LTDs can continually exist even after the death of an owner.

Disadvantages of private limited companies

Shares can only be sold in-house, and can’t be traded with the public.

It is expensive to set up due to administrative and legal costs.

They must be registered with the company registrar.

Legal paperwork is necessary for starting up an LTD.

4. Public Limited Company/PLC

A public limited company - also known as PLC - is a business ownership style unique to the United Kingdom, although it is equivalent to what is known as corporation in other countries. A PLC is an incorporated business, meaning it exists legally as a separate entity from its owners. It also has limited liability, as it offers protection to its shareholders from business liabilities.

A PLC is managed by a board of directors and owned by shareholders. A PLC's shares can be traded with the public on the stock exchange.

Advantages of limited liability companies

Capital can be easily generated through trading shares publicly.

Owners have limited liability.

Publicly listing shares makes it easier to attract investors.

Disadvantages of limited liability companies

Anyone who can afford to buy a share can be a shareholder .

A board of directors is needed to run the organisation.

They are exposed to public scrutiny and regulations.

They may be at risk of a takeover if someone buys up a majority of the shares available.

5. Non-Profit

A non-profit organisation has been established for purposes other than profit generation. The organisation's generated income does not go to the owners or members. Examples include Amnesty International and the Boy Scouts.

Advantages of a non-profit organisation

It easily attracts talent interested in the mission of the organisation.

Non-profit organisations are exempt from paying corporate income tax if they meet the necessary criteria.

Owners of the organisation are protected from personal liability.

Disadvantages of a non-profit organisation

Raising funding for projects can be complicated.

Non-profit organisations can face immense pressure from stakeholders.

The financial spending of the organisation is open to scrutiny from the public.

6. Cooperative

A cooperative is a business structure whose owners are consumers of its services. It is operated to provide benefits to those people. It often aims to pursue economic, social, or cultural goals.

Examples of cooperatives include community-owned stores and farms such as Anglia Farmers or supporter-led sports clubs.

Advantages of cooperatives

They are relatively easy to start.

Management style is democratic, with each member having voting rights.

Funding is internal, hence responsibility is shared among members.

Disadvantages of cooperatives

Independent of the amount invested, all members have equal voting rights.

There is a limit to sharing dividend payments.

There is the risk of rigid business practices.

Over-reliance on internally generated funds.

Factors to consider in choosing a business structure

In choosing a business structure best suited to your business, the following factors should be considered:

1. Start-up finance

The cost of setting up a business increases proportionally to the amount of legal paperwork. One important factor to consider when choosing a business structure is the amount of money you are willing to invest in the initial setup costs.

2. Number of owners

The amount of owners you are willing to involve in the management of your business is also an important factor to consider. Then you can custom-fit your business ownership structure to one of the many available - whether for one or 100 owners.

3. Liabilities

The need to protect your personal assets from debt makes business risk and liability an important consideration. Sole proprietorships and certain types of partnerships face unlimited liability, meaning that the owners are personally liable for any debts the business incurs.

On the other hand, incorporated companies have limited liability , meaning the owners are not personally liable for the company's debt. For owners looking to build a business with limited liability , a limited liability company or a corporation might be best .

4. Business ownership transfer

A sole proprietorship rarely outlives its owner. Considering whether you want your business to keep running after you are gone is also important. If you are looking to pass ownership to your family or children, the kind of business ownership structure you choose will be absolutely crucial.

Business ownership examples

Real-world business ownership examples by type:

• Partnership: "IDEO" is a design and innovation consulting firm that started as a partnership.
• Private Limited Companies: "Atlassian" is a private limited company that provides collaboration, development, and issue-tracking software.
• Public Limited Companies, PLC : "Walmart" is a public limited company that operates a chain of discount department stores.
• Non-for-profit Organisation: "Salvation Army" is a not-for-profit organization that provides social services, including food and shelter, to the homeless.
• Cooperatives: "Ocean Spray" is a cooperative of cranberry farmers that markets and sells cranberry juices and other products.

Now let's take a look at some examples in more detail!

Public Limited Company example

General Motors has a public limited company structure, meaning that its shares can be traded publicly. The company specializes in automobiles, and it is ranked amongst the top ten Fortune 500 companies. It is the parent company to famous brands like Chevrolet, Cadillac, and Opel.

Partnership example

Red Bull decided to create a partnership with GoPro, as the two lifestyle brands have shared interests. Both brands are about adventure, a fearless approach, and lots of action. Under the terms of the agreement, Red Bull will receive ownership interest in GoPro, and GoPro will become the exclusive supplier of point-of-view imaging technology for Red Bull's media productions and events.

In conclusion, there are six business ownership structures, each with its own advantages and disadvantages. Depending on the type of business you are looking to run, the structure you employ will be a major factor in the success of your business entity.

Business Ownership - Key takeaways

Ownership of a business refers to the legal control over a business. It gives the owner or the legal capacity to dictate the business operations and dealings.

There are six major business ownership structures namely:

• Sole Proprietorships
• Partnerships
• Private limited companies
• Public limited companies
• Non-Profit organisations
• Sole proprietorship, partnership, and limited liability companies are the most common business ownership structures.

Each form of business comes with its own set of advantages and disadvantages.

Start-up finance

• Number of owners
• Liabilities
• Business ownership transfer.
• Fig. 3 - An external view of the Gemeral Motors building (https://www.wikiwand.com/en/General_Motors_Canada#Media/File:GeneralMotorsCanada3.jpg) by Raysonho (https://commons.wikimedia.org/wiki/User:Raysonho) is licensed by (https://creativecommons.org/publicdomain/zero/1.0/deed.en)

Frequently Asked Questions about Business Ownership

--> what is business ownership.

Business (company) ownership refers to legal control over a business. It gives the owner the legal right to make certain business decisions. 

--> What are the 6 basic forms of business ownership? 

There are six most common forms of business ownership:

Sole Proprietorship 

Partnership 

Cooperatives. 

--> What is the most common form of business ownership? 

Sole proprietorship is the most common form of business ownership and the simplest. 

--> What are the factors that determine business ownership? 

There are four factors to consider while choosing business ownership, and they are: 

• Business ownership transfer

--> Which is the simplest type of business ownership? 

Sole proprietorship is the simplest type of business ownership.

--> What does PLC mean in business?

PLC in business means Public Limited Company, and it is a business ownership structure unique to the United Kingdom. It is equivalent to what is known as corporations in other countries. It has limited liability, as it offers protection to its shareholders from business liabilities.  

Final Business Ownership Quiz

Business ownership quiz - teste dein wissen.

Show answer

Business ownership refers to legal control over a business. It gives the owner the legal capacity to dictate the business operations and dealings. 

Show question

What is the simplest business ownership structure?

Sole proprietorship 

Cooperative is a form of business ownership structure?

List the basic forms of business ownership structure 

Sole Proprietorship 

Partnership 

Corporations 

Limited Liability Companies, LLC

Cooperatives 

Give two disadvantages of sole proprietorship 

1. The proprietor is bears responsibility for all business debt and losses 

2. There is mostly little to differentiate between personal and business income 

Explain sole proprietorship

Sole Proprietorship involves a business being owned and directed by an individual. The individual owns all the rights to run the business however he/she deems fit. 

What are the two forms of partnership?

General partnership and limited liability partnership 

Explain limited liability partnership 

LLP provides protection for each partner against debt incurred by the other partner(s). It usually requires a formal agreement between partners to protect each partner from the actions of other partners.

Profits generated from non-profit corporations are shared among the board

What is a limited liability company?

This is a flexible business ownership structure which employs practises from corporation, sole proprietorship and partnership providing minimal liability. 

 Give one advantage and one disadvantage of LLC

Advantage of LLC - Limited liability provide option for owners to control how the business is run

Disadvantage of LLC - Due to legal filings, starting up a limited liability company may prove expensive 

Explain the business ownership structure, cooperative 

Cooperative is a business structure whose owners are people who use its products or/and services, and is operated to provide benefits to these people. Income and profits are usually distributed among its members. 

What are the factors that should be considered when choosing a business ownership structure?

Factors that determines business ownership are -

Number of owners 

Liabilities 

Business ownership transfer 

Give one advantage and one disadvantage of PLC

Advantage of PLC - Capital can be easily generated through trading shares publicly 

Disadvantage of PLC - Anyone who can afford to buy shares can be a shareholder

what does it mean for a business to be incorporated?

An incorporated business exists as a legal entity independent of its owner. Meaning it can take loans, it can sue individuals or businesses, it is liable to its own debts. 

Not for profits organization legal entities that 

Are created for purposes other than profits generation

PLCs are runned by … 

A board of directors 

A LTD is a private incorporated organization that doesn’t make its shares public 

Test your knowledge with multiple choice flashcards

Profits generated from non-profit corporations are shared among the board 

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Starting a business is a big decision that comes with a lot of challenges. The first challenge business owners face is deciding the ownership structure they want to use. This structure will be heavily influenced by the type of business ownership employed. Each business ownership type has its unique advantages and disadvantages…

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Starting a business is a big decision that comes with a lot of challenges. The first challenge business owners face is deciding the ownership structure they want to use. This structure will be heavily influenced by the type of business ownership employed.

Each business ownership type has its unique advantages and disadvantages which contribute to the decision-making process. Understanding ownership is essential before setting up your own business. Let's take a closer look.

What is business ownership?

Business ownership provides a management framework for business owners. Thus, understanding the various types of ownership is essential to these folks.

Business ownership refers to legal control over a business. It gives the owner the legal right to make certain business decisions.

The legal structure of a business is crucial in its ramifications, so it must be understood and planned out carefully. The decisions involved impact daily operations, taxation, and the level of risk.

The legal structure is the framework through which a business is defined in a particular jurisdiction.

Types of business ownership structures

There are six basic types of business ownership structures:

Sole Proprietorship

Partnership

Private limited companies (LTD)

Public Limited Companies, PLC

Not-for-profit organisation

• Cooperatives.

Let's examine the structures in a bit more detail, along with some advantages and disadvantages of each.

1. Sole proprietorship

This is the most common form of business ownership and the simplest. Sole proprietorship means that a business is owned and directed by one individual. This individual owns all the rights to run the business however they deem fit. In other words, if you start a brand new business, and you are the only person owning and running the business, it is considered a sole proprietorship ( sole trader ).

Advantages of a sole proprietorship

All income earned belongs to the sole proprietor, who also owns all business assets.

It is the simplest of all the business structures to set up.

It provides the proprietor with flexibility in running the business.

The sole proprietor gets to make all business decisions.

Absence of corporate tax.

Disadvantages of a sole proprietorship

The proprietor bears personal responsibility for all business debt and losses.

There is little to differentiate between personal and business income.

Raising capital is the responsibility of the sole proprietor.

2. Partnership

This business ownership structure means two or more people own a business. Partnerships are of two types, namely:

General partnership - this involves an investment from all partners, and all partners bear the responsibility for any debt incurred by the business. The partnership usually doesn’t need a formal agreement as it could be verbal between business owners.

Limited Liability Partnership, LLP - LLP provides protection for each partner against debt incurred by the other partner(s). It usually requires a formal agreement between partners to protect each from the actions of the others.

Advantages of partnership

Business capital can be easily generated from each partner's resources.

Profits from services offered by the business are shared between partners.

Ownership and decision making are shared by partners .

Greater capacity for loans.

Disadvantages of partnership

Partners are responsible for losses or debt incurred by the business.

The risk of friction among partners can be high.

Partners can be held liable for the actions of other partners.

3. Private limited company/LTD

A private limited company - also referred to as LTD - is an incorporated business entity that is privately held and controlled. The ownership of the business is divided by shares in the company. Those who own the shares are known as shareholders.

This type of business ownership provides limited liability to the owners. Limited liability provides the shareholders' personal assets with protection from liabilities incurred by the business.

Advantages of private limited companies

Private limited companies provide limited liability to their shareholders.

Shares cannot be sold to the public (the current owners decide to whom they will sell them). Therefore the company is protected from loss of ownership and control.

Due to incorporation, LTDs can continually exist even after the death of an owner.

Disadvantages of private limited companies

Shares can only be sold in-house, and can’t be traded with the public.

It is expensive to set up due to administrative and legal costs.

They must be registered with the company registrar.

Legal paperwork is necessary for starting up an LTD.

4. Public Limited Company/PLC

A public limited company - also known as PLC - is a business ownership style unique to the United Kingdom, although it is equivalent to what is known as corporation in other countries. A PLC is an incorporated business, meaning it exists legally as a separate entity from its owners. It also has limited liability, as it offers protection to its shareholders from business liabilities.

A PLC is managed by a board of directors and owned by shareholders. A PLC's shares can be traded with the public on the stock exchange.

Advantages of limited liability companies

Capital can be easily generated through trading shares publicly.

Owners have limited liability.

Publicly listing shares makes it easier to attract investors.

Disadvantages of limited liability companies

Anyone who can afford to buy a share can be a shareholder .

A board of directors is needed to run the organisation.

They are exposed to public scrutiny and regulations.

They may be at risk of a takeover if someone buys up a majority of the shares available.

5. Non-Profit

A non-profit organisation has been established for purposes other than profit generation. The organisation's generated income does not go to the owners or members. Examples include Amnesty International and the Boy Scouts.

Advantages of a non-profit organisation

It easily attracts talent interested in the mission of the organisation.

Non-profit organisations are exempt from paying corporate income tax if they meet the necessary criteria.

Owners of the organisation are protected from personal liability.

Disadvantages of a non-profit organisation

Raising funding for projects can be complicated.

Non-profit organisations can face immense pressure from stakeholders.

The financial spending of the organisation is open to scrutiny from the public.

6. Cooperative

A cooperative is a business structure whose owners are consumers of its services. It is operated to provide benefits to those people. It often aims to pursue economic, social, or cultural goals.

Examples of cooperatives include community-owned stores and farms such as Anglia Farmers or supporter-led sports clubs.

Advantages of cooperatives

They are relatively easy to start.

Management style is democratic, with each member having voting rights.

Funding is internal, hence responsibility is shared among members.

Disadvantages of cooperatives

Independent of the amount invested, all members have equal voting rights.

There is a limit to sharing dividend payments.

There is the risk of rigid business practices.

Over-reliance on internally generated funds.

Factors to consider in choosing a business structure

In choosing a business structure best suited to your business, the following factors should be considered:

1. Start-up finance

The cost of setting up a business increases proportionally to the amount of legal paperwork. One important factor to consider when choosing a business structure is the amount of money you are willing to invest in the initial setup costs.

2. Number of owners

The amount of owners you are willing to involve in the management of your business is also an important factor to consider. Then you can custom-fit your business ownership structure to one of the many available - whether for one or 100 owners.

3. Liabilities

The need to protect your personal assets from debt makes business risk and liability an important consideration. Sole proprietorships and certain types of partnerships face unlimited liability, meaning that the owners are personally liable for any debts the business incurs.

On the other hand, incorporated companies have limited liability , meaning the owners are not personally liable for the company's debt. For owners looking to build a business with limited liability , a limited liability company or a corporation might be best .

4. Business ownership transfer

A sole proprietorship rarely outlives its owner. Considering whether you want your business to keep running after you are gone is also important. If you are looking to pass ownership to your family or children, the kind of business ownership structure you choose will be absolutely crucial.

Business ownership examples

Real-world business ownership examples by type:

• Partnership: "IDEO" is a design and innovation consulting firm that started as a partnership.
• Private Limited Companies: "Atlassian" is a private limited company that provides collaboration, development, and issue-tracking software.
• Public Limited Companies, PLC : "Walmart" is a public limited company that operates a chain of discount department stores.
• Non-for-profit Organisation: "Salvation Army" is a not-for-profit organization that provides social services, including food and shelter, to the homeless.
• Cooperatives: "Ocean Spray" is a cooperative of cranberry farmers that markets and sells cranberry juices and other products.

Now let's take a look at some examples in more detail!

Public Limited Company example

General Motors has a public limited company structure, meaning that its shares can be traded publicly. The company specializes in automobiles, and it is ranked amongst the top ten Fortune 500 companies. It is the parent company to famous brands like Chevrolet, Cadillac, and Opel.

Partnership example

Red Bull decided to create a partnership with GoPro, as the two lifestyle brands have shared interests. Both brands are about adventure, a fearless approach, and lots of action. Under the terms of the agreement, Red Bull will receive ownership interest in GoPro, and GoPro will become the exclusive supplier of point-of-view imaging technology for Red Bull's media productions and events.

In conclusion, there are six business ownership structures, each with its own advantages and disadvantages. Depending on the type of business you are looking to run, the structure you employ will be a major factor in the success of your business entity.

Business Ownership - Key takeaways

Ownership of a business refers to the legal control over a business. It gives the owner or the legal capacity to dictate the business operations and dealings.

There are six major business ownership structures namely:

• Sole Proprietorships
• Partnerships
• Private limited companies
• Public limited companies
• Non-Profit organisations
• Sole proprietorship, partnership, and limited liability companies are the most common business ownership structures.

Each form of business comes with its own set of advantages and disadvantages.

Start-up finance

• Number of owners
• Liabilities
• Business ownership transfer.
• Fig. 3 - An external view of the Gemeral Motors building (https://www.wikiwand.com/en/General_Motors_Canada#Media/File:GeneralMotorsCanada3.jpg) by Raysonho (https://commons.wikimedia.org/wiki/User:Raysonho) is licensed by (https://creativecommons.org/publicdomain/zero/1.0/deed.en)

Frequently Asked Questions about Business Ownership

--> what is business ownership.

Business (company) ownership refers to legal control over a business. It gives the owner the legal right to make certain business decisions. 

--> What are the 6 basic forms of business ownership? 

There are six most common forms of business ownership:

Sole Proprietorship 

Partnership 

Cooperatives. 

--> What is the most common form of business ownership? 

Sole proprietorship is the most common form of business ownership and the simplest. 

--> What are the factors that determine business ownership? 

There are four factors to consider while choosing business ownership, and they are: 

• Business ownership transfer

--> Which is the simplest type of business ownership? 

Sole proprietorship is the simplest type of business ownership.

--> What does PLC mean in business?

PLC in business means Public Limited Company, and it is a business ownership structure unique to the United Kingdom. It is equivalent to what is known as corporations in other countries. It has limited liability, as it offers protection to its shareholders from business liabilities.  

Final Business Ownership Quiz

Business ownership quiz - teste dein wissen.

Show answer

Business ownership refers to legal control over a business. It gives the owner the legal capacity to dictate the business operations and dealings. 

Show question

What is the simplest business ownership structure?

Sole proprietorship 

Cooperative is a form of business ownership structure?

List the basic forms of business ownership structure 

Sole Proprietorship 

Partnership 

Corporations 

Limited Liability Companies, LLC

Cooperatives 

Give two disadvantages of sole proprietorship 

1. The proprietor is bears responsibility for all business debt and losses 

2. There is mostly little to differentiate between personal and business income 

Explain sole proprietorship

Sole Proprietorship involves a business being owned and directed by an individual. The individual owns all the rights to run the business however he/she deems fit. 

What are the two forms of partnership?

General partnership and limited liability partnership 

Explain limited liability partnership 

LLP provides protection for each partner against debt incurred by the other partner(s). It usually requires a formal agreement between partners to protect each partner from the actions of other partners.

Profits generated from non-profit corporations are shared among the board

What is a limited liability company?

This is a flexible business ownership structure which employs practises from corporation, sole proprietorship and partnership providing minimal liability. 

 Give one advantage and one disadvantage of LLC

Advantage of LLC - Limited liability provide option for owners to control how the business is run

Disadvantage of LLC - Due to legal filings, starting up a limited liability company may prove expensive 

Explain the business ownership structure, cooperative 

Cooperative is a business structure whose owners are people who use its products or/and services, and is operated to provide benefits to these people. Income and profits are usually distributed among its members. 

What are the factors that should be considered when choosing a business ownership structure?

Factors that determines business ownership are -

Number of owners 

Liabilities 

Business ownership transfer 

Give one advantage and one disadvantage of PLC

Advantage of PLC - Capital can be easily generated through trading shares publicly 

Disadvantage of PLC - Anyone who can afford to buy shares can be a shareholder

what does it mean for a business to be incorporated?

An incorporated business exists as a legal entity independent of its owner. Meaning it can take loans, it can sue individuals or businesses, it is liable to its own debts. 

Not for profits organization legal entities that 

Are created for purposes other than profits generation

PLCs are runned by … 

A board of directors 

A LTD is a private incorporated organization that doesn’t make its shares public 

Test your knowledge with multiple choice flashcards

Profits generated from non-profit corporations are shared among the board 

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• Business Operations
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• Introduction to Business

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