• May 29, 2018

Different Types of Business Structures

The business structure is one of the topics which comes up first when it comes to venturing into business. The business structures in consideration include sole proprietorship, partnerships, limited liability partnerships, Limited Liability Company and corporations.

Each type of structure has its own unique set of characteristics and legal implications; also there are common characteristics too. The differences also apply when it comes to registering.

Sole Proprietorship

Most small businesses assume this form of structure as they are starting off since it is quite simple to form. Also, there are minimal regulations and legal costs involved as one is starting up. The sole proprietor own, runs and handles all aspects of the business.


  • The sole proprietor shares the profit from the business alone.
  • Revenue and proceeds from the business and profit are charged as personal income therefore double taxation does not apply.


  • Unlimited personal liability applies, which is solely borne by the proprietor. These include debts, claims and taxes.
  • The business is subject to potential dissolution in the case where the sole proprietor is ill, incapacitated or dies.


This form of business structure is relatively easy to come up with and there are increased benefits when compared to the sole proprietorship. The association of a couple of partners enables handling of different aspects of the business.


  • There are increased financial resources since the various partners input monetary resources.
  • Specialization may apply where the partners individually handle areas where one has knowledge and expertise. This increases proficiency and efficiency in the business.


  • There is joint unlimited liability which is borne by all the partners. Faults of one partner are borne by another.
  • A lot of dispute is bound to occur since differing partners have varied opinions and decisions which they would like enforced. This may affect progress of the business.

Limited Liability Partnership (LLP)

In this type of partnership, limited liabilities apply for certain or all partners, depending on what they state in the agreement. Basically, there is a fusion of both partnerships and corporations. In certain cases, the requirement by the law is that at one party to the partnership agreements possesses unlimited liability.


  • It exists as a separate single entity which has the ability to own property, sue and be sued.
  • Due to limited liability of the partners, the liabilities incurred in the partnership aren’t transferable to the partners with limited liability.


  • The general partner who has unlimited liability, is bound to suffer in the case of liabilities cause by the limited partners.
  • In certain locations, there is limitation with regard to the professions that can set up such partnerships e.g. lawyers, architects, doctors and accountants.

Limited Liability Company (LLC)

This form of business structure incorporates features of both partnerships and corporations. This means that the concept on liability protection is introduced to the business while eliminating possibilities of double taxation. When registering a company name as an LLC, it is important for one to consider the legal implication that apply in case anything comes up. Visit for more information on registering your company name.


  • Liability protection is offered to all the members of the company. In case of debts and claims, only the members’ investment is affected.
  • With regard to ownership, there is no limit to the number of owners.


  • The business is subjected to relatively higher fee e.g. renewal fees and more stringent government regulations.
  • Taxation may be relatively high especially when the nature of the business is put into consideration.


This form of business structure is regarded as the most complex and costly to set up and run. It exists as a separate entity from the owners and therefore the legal obligations and tax requirements are also different.


  • There is liability protection therefore any liability incurred by the business is not borne by the owners.
  • Upon death of a shareholder, member or senior official, the company still continues engaging in various activities.


  • In the course of setup and running, a lot accounting and tax regulations have to be adhered to.
  • Also, there is double taxation which reduces the amount of money shareholders are entitled to. Tax applies for corporate income tax and shareholder’s dividends.

A pretty interesting post, huh?

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