The Different Kinds of Business Structures

If you are considering setting up a business, there are different kinds of business structures that you need to know about. This will enable you to decide which one best suits the type of business you have in mind. It is a good idea to consult with lawyers to ensure you are choosing the right structure and that you comply with all the rules and regulations. This could also assist you with any future possible business disputes including shareholder disputes.

Once you decide and start up your business, it is always a good idea to keep those lawyers on hand so you can get their advice on any legal matter that may arise. They will be familiar with your business by then and be able to offer the needed advice quickly, which is good when time is of the essence.

Here are the four main business models: –

  • Sole Trader – many people who set up a home business or an e-business at home are sole traders. As the name implies, they work by themselves without any employees. They alone are responsible for debts and they also own all the profits. They may need to consult with a solicitor to find out some of the things needed for their business. Council permission may be needed to start up a business from home, especially if clients need to go there.

  • Partnership – a partnership is when two or more people set up a business together. They may or may not have employees, but all the decisions, responsibilities and profits are shared between them, but not necessarily equally, depending on each one’s role in the business.
  • A Company – this is a business structure where the entity or company is distinct and separate from the officers or shareholders. Companies can be private or public and have only two people in them or more. Often a partnership is changed over to a private company structure as it expands and grows.
  • A Trust business structure – this is where a person or a company does business on behalf of other people, who are known as the beneficiaries. There are two types; a discretionary trust where the profits are distributed to the beneficiaries at the discretion of the trustee, or a fixed interest trust where the profits are distributed according to a predetermine proportion. Trusts are more tax effective in many cases.

For someone starting up a business for themselves, one of the first three is the usual type of structure chosen. A trust is more likely to be chosen to say, administer an estate or business on behalf of a minor or someone who cannot do it by themselves.

All of them require compliance with certain laws, rules and regulations, although in the case of the sole trader, these are very minimal.