Business Structures – Types of Business Structure
A business is defined by dictionaries as a corporation or legally organized group of people, usually at a common enterprise of trade. A business may be publicly or privately owned, privately operated, or owned and operated for the benefit of members of a community, corporation, group, etc. A business is also divided into different classes depending on the intent and structure of the business. There are seven basic types of business: financial service, manufacturing, retailing/distribution, professional services, information technology, hospitality, and partnerships.
A corporation is created by filing Articles of Organization with the appropriate city, state, or county government. In most cases, the name of the corporation is reserved for the name of the individual or company owning and managing the corporation. A C corporation is virtually the same as a C corporation except that only shareholders will see and have control of the stock. The general nature of a C corporation is that it will keep its shareholders together for the benefit of the entire corporation.
A partnership is a type of business structure that provides for the involvement of partners rather than just one shareholder. Partnerships are generally registered corporations. When a partnership is formed, all shareholders are usually listed on the partnership’s records, which makes them jointly and severally liable for the company’s debts. Many partnerships form because one partner wants to buy a controlling interest in the company and then use their own money to run the business; others are formed because both partners want to share ownership and build the business together.
The last two business types are limited partnerships and limited liability partnerships (LLPs). A Limited Partnership is a type of corporation that allows its shareholders to act as partners and is not required to file reports with the state. Limited liability partnerships are corporations that can be sued by other investors if they use their assets in ways that damage the business.
As a final example of a popular business structure is the limited liability company (LLC). An LLC is designed to protect investors while still allowing the owners to retain some personal liability for the debts of the business. Some popular uses for an LLC include creating retirement plans for personal retirement accounts and creating vehicles such as trusts.
Every partnership requires that each partner have a fiduciary, or personal safety, duty. Fiduciary duties are imposed so that each partner knows what their responsibilities are and how they should report those duties to each other as well as to the general partnership. Without that knowledge, each partner may engage in actions that will benefit them individually but will have little effect on the partnership as a whole. Every partner has a direct interest in the success of the partnership. All of the business combinations listed above have one common purpose: to provide for the financial interests of all partners.