The typical organizational structure for a small business often depends on the type of business being operated. Traditionally, the sole proprietorship is the most typical organizational structure for a small business. Other organizational structures, such as general partnership and limited liability company, may be appropriate for some small businesses.
Small businesses have many decisions to make when starting up. One such decision is how to organize and operate the business. Each type of organizational structure has its advantages and disadvantages, so business owners will want to take the time to investigate the options.
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Perhaps the easiest type of business to start and maintain is the sole proprietorship. A typical organizational structure for a small business, a sole proprietorship is owned by one person. In fact, a sole proprietor keeps all income for himself and reports income as such on a personal tax return. The potential downside of operating a small business as a sole proprietorship is that the company operates with unlimited liability. This leaves personal assets open to attack and leaves the owner responsible for all business debts.
General partnerships are a typical organizational structure for a small business with two or more owners. With this type of organizational structure, profits are divided among partners and decisions are made jointly. Making sure a partnership agreement is in place before starting this type of small business is an important aspect of operating as a general partnership. The partnership agreement will lay out all responsibilities, duties and expectations for all owners.
Some small businesses may find that the best option is to form a limited liability company (LLC). Under this type of typical organizational structure for a small business, owners enjoy the limited liability provided by the formation of a corporation and are able to operate much like a partnership would. Typically, businesses involved in activities that may leave them open to a lawsuit as a result of personal injuries, such as transportation or food and beverage sales, should consider the protection an LLC offers.
Other types of organizational structure exist and may be appropriate for certain small businesses. Some small businesses may choose to form a corporation from the start in an effort to plan for future growth and expansion. Corporations are a separate entity and are legally liable for all debts and decisions related to the corporation. Other options include forming an S corporation or cooperative. While these aren’t the typical organizational structure for a small business, they do offer alternatives for the small business owner.