Call us Contact us now
+44 (2038) 07 15 07


  • Home
  • Blog
  • How to choose a suitable company structure for your business?

How to choose a suitable company structure for your business?

Mar 09, 2017

Important thing while starting a business, is to choose the right legal structure of the company. It affects many legal aspects of company`s procedures. For example, who runs the company, how taxes are paid, which documents need to be prepared and many other. Entrepreneur needs to know the most common types of company structure and select the best one to run their business effectively.

Here are 4 types of offshore company structure that are most often used:

  1. Sole proprietorship is a structure where the founder is the only owner of the company and runs it all by himself. It is easy to obtain licenses or permits for this type of business structure, and some countries does not require registration. On the other hand, entrepreneur is fully responsible for the company and for all obligations of the business. Individual entrepreneurship can be perfect for small businesses.

  2. Partnership, unlike sole proprietorship, requires at least two partners to start a business. In most cases, both of the partners are equally reliable for financial obligations of the company. However, some of partnership`s liability can be limited due to capital investments they made in the company. Basically, partnership requires governmental registration and obtaining necessary licenses for functioning.

  3. Corporation is a type of company structure in a form of legal entity. It functions independently and shareholders or owners are free from making most common decisions. This structure allows executives to hire employees, perform legal actions and deal with standard functioning matters. It is a company type where shareholders are not personally liable for its financial obligations.

  4. Limited liability company, also known as LLC, is one of the most common types of business. They are easier to register than corporations and have many advantages. In LLC, owners are not personally liable for financial matters of the company. They are not obliged to cover losses, pay debts and perform other financial actions. This makes LLC popular between entrepreneurs.

Many different things need to be considered while choosing the best company structure for your business.

OffshoreLicense Ltd helps you deal with a list of most important ones.

• Personal liability and assets protection

Entrepreneurs should divide personal costs from enterprise finances while starting a business. This means that the safest company structures are the ones which not require founder to personally solve financial problems of the company. It is a good choice to select a limited partnership structure if you are looking to establish a new partnership. For example, general partnership or sole proprietorship, does not include a liability protection for the owner of the company. In case of bankruptcy, partners or founders will be responsible for company’s obligations and his personal assets will be used to cover required debts.

• Capital investments

Limited financing is a common thing for startup businesses. Least expensive company structure is sole proprietorship. It does not require additional tax payments, lawyer fees to draft formation documents and, at the same time, is easy to establish. Sometimes it is a reasonable decision: to start from sole proprietorship and then register a partnership company or LLC. On the first stage, it is crucial to lower your expenses on business registration process.

• Taxation matters

You can never avoid taxes at all but in different company structures tax obligations differ too. In sole proprietorship or partnerships, income tax is displayed in personal declarations and reports. This works also for LLC, where every partner show their income in personal documents and taxes are payed according to them. However, every structure except sole proprietorship, require you to interact with tax authorities. It is important to know, that the bigger company is, the more you need to form financial or accounting department to deal with taxation matters.

• Running the entity

Different enterprises need to spend different running costs. It mostly works depending on the size of the company. Sole proprietorship is cheaper to run, as you do not need to hire additional specialists and spend additional assets on making company work. Unlike small businesses, corporations require costly measures to function effectively. Bigger amounts of paperwork, additional legal or accounting specialists, forming board of directors and organizing its activity: all this effects corporate expenses.

• Sharing profits

If you are not in sole proprietorship or single-member LLC, you will need to share the profit with partners or co-founders. In general partnerships costs are divided equally between partners, but in corporations or limited partnerships it depends on the capital investments that are made. Shareholders, for example get dividends depending on amount of shares they own. In multi-member LLCs profit gain is also dependent on your capital part in the authorized capital.

• Capital attraction and investments

Basically, investors choose to establish partnerships where they will not bear additional taxes and legal obligations. LLC is the least popular choice because it requires partners to invest the own assets. For corporations, it is the easiest process because buying shares actually means investing in the company. A reasonable choice is to start a sole proprietorship and change company`s structure after investors are attracted. It will require to convert all documents and proceed with registration but on the other hand, investors will be able to establish business relations in the most reliable way.

• Liquidation of company

There are different reasons to close existing business. Fr om personal decision, low profits to legal problems and another aspects. Closure procedure depends on the company structure too. Sole proprietor can easily close business by himself. Partnerships and LLCs require a special procedure, where all members should agree on dissolution procedure, terminate partnership agreement and file all needed paperwork. Corporations are more complicated: the more shareholders company has, the more people are involved in liquidation process. Also, it is important to terminate all licenses and permits that company has, settle all debts, pay employees and close all bank accounts. The more complicated company structure is, the harder is to settle and close the business.

After analyzing all these arguments, you know more about types of company structures. Therefore, it will be easier for you as an entrepreneur to choose the most suitable one. OffshoreLicense Ltd is always ready to help you with selecting the best type of structure for your business.

Back to list