She owns and operates a retail business full-time since 2010. Each has different tax liabilities, management structures, and other considerations that you need to carefully think about before starting your operation. LLCs combine the elements of a corporation with those of a partnership or solely owned business. The divisional structure follows a functional model within each division. Two or more people come together to work at a given business and share in the profits (or losses) or that business. Typically, an elected board of directors and officers run the cooperative while regular members have voting power to control the direction of the cooperative. For instance, your organization may include production, finance, human resources and marketing groupings. The team structure can help remove barriers between departments and foster effective problem-solving relationships. If you’re looking for some additional guidance, consider reaching out to a mentor who can help you decide what may be best for you. So now that you’ve got the basics about business structure, which one is right for your small business? The usefulness of each model will depend on your company's size, philosophy and function. But before you do anything, you should compare and contrast the different business types under which you can operate. It is fairly easy to establish a sole proprietorship, and the process of running them is fairly simple. Managers can focus resources and outcomes on their specific departments. If you’re getting started in your business ventures, one of the first things you might be thinking about is how to structure your business. Such an organization is predicated on systems of law governing contract and exchange, property rights, and incorporation. © Copyright 2003 - 2020, Small Business Trends LLC. The three main divisions may be listed as: 1. You may divide work units by expertise, resources, skills and activities. Copyright 2020 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. Employees in each department fill duties not covered elsewhere in the company, minimizing an overlap of tasks. Small businesses can choose to organize as a sole proprietorship, partnership, corporation, S corporation or limited liability company. Most businesses are limited-liability companies. A partnership is similar to sole proprietorship, except more than one person is involved. The divisional structure is defined by the grouping of departments and is used by larger companies. The shareholders dictate who runs the company and how it conducts business, then receive profits based on the shares of stock that they own. Reviewed by: Michelle Seidel, B.Sc., LL.B., MBA. Sole Proprietorships . They’re not legally required, but they’re encouraged so that you know from the beginning how you’ll make future business decisions. Here’s a brief comparison of the three types of entities: 01. of 03. Like corporations, the owners are not personally responsible for debts and other liabilities. What Are the 5 Major Cybersecurity Mistakes I Can Avoid as a Small Business Owner. But you also lack control in the outcome because you rely on contractual workers to complete critical work. 1. Some provide owners a lot of flexibility in management and control and some do not. The matrix structure combines the specialization provided by a functional structure and the focus provided by a divisional structure.Employees are part of teams that connect functional roles with divisional roles. There’s no distinction between the business and you, the owner. Goal is to not let my ex- wife notice changes in my income…she alredy gets quite a bit from me. The structure increases employee motivation and allows training across functional areas. What Types of Business Organizations Are Owned by the Stockholders? Like partnerships and sole proprietorships, they are comparatively simple and allow for quick operation. I ended up seeking some mentors’ help and then attending some seminars just to understand this. By exploring the five major organizational structures, you'll be better equipped to choose the one that best fits your company's needs. Limited Liability Companies first arose in 1977, making them a comparatively recent phenomenon. Organizations that group positions by similar roles follow a functional structure. Specialized Staff. The structure helps managers monitor performance more easily than some other models. Our South Carolina business formation lawyers review the four most common types of business entities […] Unlike other corporations, they pass all profits, losses and tax deductions to their shareholders, rather than absorbing them as their own entity. A sole proprietorship is the most basic – and easiest – type of business to establish. What is Return on Kindness and Why is it Important to Your Small Business? They exist separately from the people working for them, which means that the owners need not worry about personal liability, and that the company continues even after the founders have retired. For instance, you may employ an accountant, website administrator or security personnel on a contractual basis. Personal Staff. In a network structure, your organization would rely on other organizations to perform important roles. Will you be going solo or will you form a partnership? It can also motivate employees and increase decision-making times.