Business Structure Overview & Diagram
For a new entrepreneur or business owner it can be difficult to even know where to begin when selecting the best business structure for your business. So, here, we’re going to take a look "from above the forest" at the different types of business structures you could select.
With that said, there are essentially 4 main business structures. The 4 main business structures listed generally from least to most sophisticated include:
- Sole proprietorships,
- Partnerships,
- Limited Liability Companies, and
- Corporations
The level of "sophistication" refers to the time and energy to create, maintain, and properly manage the legal aspects of the business structure. But keep in mind that situations can occur where a "less sophisticated business structure,”" is actually more sophisticated than a "more sophisticated business structure." What do we mean? Well, for example, a partnership may require more legal work than a limited liability company depending on specific facts of the business.
Additionally, we can break apart the above 4 types of business structures into a little more detail. Below is a diagram of the 4 main business entities broken down in a little more detail, again from the least to most sophisticated structures:
The Business Structure Spectrum:
- Sole Proprietorships
- Partnerships (i.e. General Partnerships)
- Limited Partnership – with a "natural" general partner (e.g. individual)
- Limited Partnership – with a corporation as a general partner
- Limited Liability Partnership
- Limited Liability Companies
- Limited Liability Company – member managed
- Limited Liability Company – manager managed
- Corporations
- S-Corporation
- C-Corporation
Now, this is a "big picture" from "above the trees." This should give you a general idea about what types of business structures are available. There can be variations of these business structures (e.g. professional business structures like with law firms, accountant firms, etc.), but the above diagram represents the foundation for different types of business structures. Also, while this chart attempts to simplify which businesses are easier to maintain than others, the actual details of the business will determine its true level of sophistication.
Next, we’ll go over some main areas to take into consideration when selecting any business structure.