Choosing the right legal business structure

LEGALLY SPEAKING

Before you start a business, you need to decide what kind of structure your business will take.

You need to register your business as a corporate entity in order to open bank accounts, get funding from potential investors or even a loan from the bank.

To get the most out of your business you need to choose the right structure. Selecting the right type of company will help you maximize your chances of financial and operational success.

Here are the main categories for business registration to choose from :

1. Private Limited Liability

Here, business assets are separated from personal assets. Every shareholder is only responsible for their share of the total capital. This business structure is suitable for businesses owned by more than 1 persons. The biggest pro is that your personal assets may not be liable in the case that the company is in debt.

2. Public Limited Company (PLC)

A public limited company (PLC) is a public company whose shares can be traded and sold to the public. Initially, a PLC is formed like any other company. Two or more people are required to own it, and it is constituted by the filing of articles of association that describe its purpose, membership and capital. The pros of this is access to funding via trading of company shares and a major con is you will be held accountable by law for improper code of conduct and can be voted out by your share holders at any point.

3. Proprietorship

A business registered in the name of an individual is called Sole Proprietorship. A single person is completely responsible for the entire business with the business and the owner not being separate from each other. This means the owner financially backs the business, has exclusive rights to the business profits and bears any losses.

The pro is that its very uncomplicated to set up and manage however your personal assets will be used to compensate for any losses.

4. Partnership

A partnership and a sole proprietorship are very similar, with the one distinction being the number of people involved in the business. For a proprietorship, only one person is responsible for the business, while with a partnership there is more than one individual involved.

Any profits earned by the business are shared between the partners and all partners are responsible for losses for which they can use personal assets to compensate for.

Depending on the stage and nature of your business, you need to take into account several factors required to determine the best model for your business. Its essential to err on the side of caution and chose a business structure that works best with your business and personal needs.

Wonuola Okoye

Principal Coach

Big Startup

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