The success of any organization depends on its established structures, and one of such structures is business formalization. A formalized or registered business guarantees protection for your business or company name from being used by other entrepreneurs, access to credit facilities, investor trust, customer loyalty, and access to local and international opportunities.
If you are in business for profit or you are running a profit-making organization, there are 3 key business structures you can consider adopting to help protect your business.
1. Sole Proprietorship
A sole proprietorship, otherwise known as a one-man/woman business is designed as its name implies. It is managed usually by an individual who bears all the profits, risks, and liabilities of that company. He/She is responsible for all business decisions. This registration type only protects the name of the business but does not guarantee the legal personality of the business. The business owner cannot sue or be sued in the name of the business, hence any legal matters will be directed to the business owner personally. Also, the death of the business owner will automatically bring the business to an end.
The advantages of this type of registration are that it is more affordable and easier to set up. The business owner can also upgrade the business structure to a limited liability structure when he/she is ready to do so at any time.
A partnership structure has similar features to a sole proprietorship and is both categorized as Business Names. In other words, the partnership registration only secures the name of the partnership and does not confer any other legal personality on the business like the case of a sole proprietorship. It is also very easy and affordable to set up. A partnership structure can have between 2-20 partners in the partnership business. However, the risks and liabilities of a sole proprietorship also apply to this.
3. Limited Liability Company
This type of structure is a more sustainable structure and ideal for anyone looking to build a long-term business. This form of registration confers a legal personality on the business, separate from the business owner. The owners of the business are known as shareholders, while directors run the day-to-day operations of the business.
This structure also guarantees the longevity of the business because the death of any director or shareholder does not mean the end of the business. The shares of each shareholder can be re-issued or transferred to another.
An individual can also register as the sole director or shareholder of the business, thereby guaranteeing his interest and rights in the business.
If you are still finding it difficult to decide which of these structures is best suited for your business, you can take our Quiz via this link: https://bit.ly/cbbizquiz