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Different Business Structures: The Pros & Cons

Different Business Structures: The Pros & Cons

One of the early decisions that you have to make when you set up a business is which structure to use. There are many different structures, and they each have their own advantages and drawbacks which you need to be aware of. The more acutely aware you are of the pros and cons of these different types, the easier a decision it will be to make. In this post, therefore, we will look at some of the pros and cons of the most popular business types, so you can make this decision much more easily.

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Sole Proprietorship

We will start with sole proprietorship, as it is the simplest kind of business you can run. In this business structure, you are the sole owner and operator of the business, with no other employees. You don’t actually need to register as a sole proprietorship specifically, it’s just what you are automatically if you are the only one in the business. An advantage of this type is that it is therefore easy to set up, with no corporate formalities such as paperwork or meetings to attend. On the other side, however, you are personally responsible for any debt or other financial burden the business might come into.

Limited Liability Company (LLC)

One of the biggest advantages of an LLC is, as with a sole proprietorship, that it is relatively simple to run. A simple LLC can be filed online, so it is a great opportunity for anyone who is looking for simplicity above all else. Unlike a sole proprietorship, however, you are not personally responsible for the debt of an LLC. That is a huge benefit, although on the other side an LLC is more expensive to create. Overall, however, it is a good option for most people wanting to set up a business.

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A corporation is an independent legal entity, which can be a very useful thing in a number of ways. It exists separately from the company’s owners, and it is controlled by all of the shareholders, who vote in order to make a decision. Therefore, there must be regular meetings with the shareholders, and this is something that some might consider to be an issue when they are starting up a business. However, in many respects a corporation is a great kind of company to run: there is no personal liability for debts, and a corporation has the eligibility for many more tax deductions than other types of business.

Limited Partnership

Finally, let’s look at the Limited Partnership. This is a much less common form of business structure, but it also has a number of distinct advantages which are worth considering. It is a good option if you want to raise money, because an investor can also be a member of the group. However, on the other side, those members are responsible for everything – including debts and other liabilities.

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Consider all of these types carefully before choosing one – it is a decision which will affect the rest of the business’ life profoundly.

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