Starting a business means that you have to decide which of the business structures available best suits you and the purpose of your business. This choice is made necessary by the fact that each business structure has its advantages and disadvantages.
Types of Business Structures To Operate In Nigeria
Sole Proprietorship: This is a one-man business.
Decisions are quick and easy to make and the structure requires less paper works than other structures.
The owner is personally liable for the risks and losses of the business.
Partnership: It is owned and managed by at least two people who have consented to sharing profits and losses.
The financial involvement and risks are shared by all partners.
One major disadvantage is that partners are collectively liable for the act of each partner and for losses.
Limited Liability Company: This involves the creation of a legal personality that has its own existence outside that of individuals who come together to create it.
The new entity can acquire properties, enter transactions and institute legal actions in its name.
A company does not dissolve at the death if its shareholders.
What Factors Should Determine your Choice of Structure?
Nature of Business: Some businesses, in certain industries, such as insurance, banking, etc, cannot be going concerns in other business structures other than as a company.
Liability: The amount of liability which the business owner(s) wants to be exposed to may determine the choice of structure. Where the owner(s) does not want to be personally liable for losses and acts of the business, a company is most suitable. Where the owner is not averse to being personally liable, a sole proprietorship or partnership could be a fair option.
Cost of Forming and Running Business: While sole proprietorships and partnerships require relatively low cost of formation and administration, the cost of formation and administration of a company is relatively expensive. A person or group of persons who have substantial capital may not be wary of the high cost of running a company.
Number of People Involved: Where only one person or not many people want to go into business, the structure to adopt will most likely be different from when more than twenty people want to go into business together. The number of people and the extent of their liability also determine the structure of business to adopt.
Continuity of Business: One other important factor to consider is whether a business owner wants the business to continue when they die. Where the answer is affirmative, sole proprietorship or partnership may not be most suitable.
This blog post sheds some light on the different business structures that can be adopted by business owners.
Please share your thoughts in the comment section.