Business Organizational Structures
Module 6
Business Organizational Structures
By Ashley DaCosta
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Business Organizational Structures
Owning a business is a significant effort that provides several advantages and
disadvantages. Choosing the sort of business structure to use is one of many considerations
you’ll have to make when creating a business. Understanding the many organization structures
available might help with making this critical decision.
Let’s look at sole proprietorship, it’s owned and ran by a single person. A sole
proprietorship owner does not require the permission of a board or partner to make daily
company decisions. They also get to keep the proceeds and decide what to do with them. This
type of structure has its advantages such as, all processes and decisions are made solely by the
owner. It’s less difficult to establish than other types of businesses since they do not need as
much paperwork. And this form of business has a simpler tax filing process than other types of
enterprises. But there are also disadvantages that’s associated with being a sole proprietorship.
The proprietor bears full responsibility for the company’s losses. The owner raises starting cash
and it may be more difficult to sell the company. Another disadvantage is “sole proprietors suffer
from one hugely unattractive feature: unlimited liability. Since there is no difference between the
owner and the business, the owner is personally liable for all the business’s debts and
obligations.” (Schmitz, 2012)
A partnership is a type of ownership in which two, or more owners control a business.
This is known as a general partnership where the partners come together and “share in the profits
and losses of the business together.”(Schmitz, 2012) The joint owners may manage the day-today operations personally or through designated agents. The owners of a partnership sign a
written agreement outlining each partner’s rights, shares, and duties, this is known as an article
partnership. Partnerships are often divided into two types: limited liability partnerships and
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unlimited liability partnerships. Individual partners in a limited liability partnership can not incur
losses caused by another, so no authority may collect or sell one person’s belongings to pay for
the obligations of the other partner. An unlimited liability partnership is one in which both
partners share responsibility for the firm. “General partnerships are also similar to sole
proprietorships in unlimited liability”(Schmitz, 2012)
If one partner is directly accountable for a loss, the obligation is borne by all other
partners, even if they are not directly responsible for the losses. The advantages of having a
partnership structure is that they provide the possibility of gaining greater access to information
and skills from partners. Capital injection is simpler than in other business forms. This company
model allows you to share the load of beginning costs and capital investment. The distribution of
labor among partners improves work-life balance. The disadvantages of a partnership comprises
partners bearing the weight of responsibilities regardless of who is liable for the loan. As all
partners reflect on crucial issues, they risk of loss of autonomy. There is a greater possibility of
dispute between parties. When one partner disagrees with the idea to sell the firm, selling issues
might occur.
A corporation is another organizational structure where a collection of people work
together to run a business. This “form of business organization that provides limited liability to
owners and is also flexible and easy to manage.”(Schmitz, 2012) However, there are several
types of corporations, domestic corporation foreign corporation closed held corporation and S
corporation. But with any corporation the ownership is separated from the owners’ assets and
obligations. In the event of a loss, the owners only lose the amount invested. Those forming a
corporation must file a document known as the articles of incorporation in the state where their
company will be situated.
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Individuals can purchase shares in a private firm, allowing the company additional funds
to develop or invest in better technology or tools. Individuals who purchase shares become
shareholders in the corporation. Some pros and cons of a corporation are there is no requirement
to disclose financial results to the public. There is little to no shareholder pressure for short-term
success. According to (Schmitz, 2012) owners have little liability exposure and access to finance
markets restriction and regulations are more strict than in a partnership or solo proprietorship.
Higher administrative costs are possible but with more stockholders, there is less control over the
business.
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References
Kappel, M. (2021, April 28). Business Structures 101: Which One’s The Best Fit For Your
Company. Forbes. http://www.forbes.com/sites/mikekappel/2021/04/28/businessstructures-101-which-ones-the-best-fit-for-your-company/?sh=6ea6fbd63141
Schmitz, A. (2012). The legal and ethical environment of businessv. 1.0. Saylor Academy.
http://saylordotorg.github.io/text_the-legal-and-ethical-environment-of-business/s14business-organizations.html