Types of Business Structures


The Operating Plan should ldiscuss the legal business structure.  That is whether the enterprise will be set up as a sole proprietorship, a partnership or a corporation.  A sole proprietorship is a business who has a single owner that is personally liable for any business debts and contracts. A partnership is a business having two or more owners, all of whom are personally liable for all business debts and contracts. A corporation, on the other hand, may have one owner or several owners, all of whom are generally NOT personally liable for the businesses' debts or contracts. In a nut shell, a corporation is a separate entity from its owner or owners.

If your operating plan involves registering the business as a sole proprietor, be sure to indicate when you plan to do so (if you already have not), the cost to register as a sole proprietor and the organization/government entity you plan to register your business structure through. In addition, your operating plan should indicate whether you intend to re-register your business name as a different business structure in the future (IE a partnership or corporation). For instance, in the beginning, many entrepreneurs register their business as a sole-proprietor due to its simplicity and costs. As their company grows and becomes more profitable, they decide to register as a corporation. Their rationale is to alleviate any loss of personal assets, resulting from a possible law suit, for instance.

Similarly, some entrepreneur's operating plan involves registering as a sole proprietorship and later re-register as a partnership. In this case, the entrepreneur may find someone that is willing to go into business with him or her. The partner may bring work experience, monetary contributions, highly required skills, or some other benefit to the organization. At any rate, if you envision the business form changing from a sole proprietorship to a partnership or corporation, be sure to indicate the reasons for doing so.

If you operating plan is to establish a partnership, your opearting plan should discuss the number of partners your venture will have in the beginning, whether you plan to solicit other partners in the future, the monetary contributions of each partner, other assets invested by each partner, the cost to register as a partnership, and if you plan to re-register as a corporation sometime in the future.

In addition, entrepreneurs planning on establishing a partnership, are advised to have a partnership agreement developed by a professional accountant and/or lawyer. Readers (investors) generally shun operating plan and business plans if the owners (partners) have not established a "binding" partnership agreement. You should indicate that a partnership agreement has been formed and signed by each owner (if this is the case). A copy of the agreement is usually placed in the appendices section of the business plan. If you do not have a partnership agreement, indicate why and discuss the stage you are at in its development.

If you are registering a corporation, your operating plan should discuss all important issues of the corporation. For example, what type of corporation are you registering, the name of the accounting/law firm that will or is anticipated to draw up the paper work, the number of shares you plan to have and issue, the type of shares you plan to have, the cost of forming your corporation, why you chose to register as a corporation, and when you plan to register as a corporation (if not already registered).

The amount of detail you provide under the Operating Plan of your business  plan certainly depends on the type of business you plan to register, the complexity of your business endeavor and the nature of your planned business enterprise.

For addition information on sole-proprietors, partnerships and corporations, please refer to Legal Business Forms.  For addional information relating to the Components of the Operating Plan, please refer to the section entitled Operating Plan.

Categories: Operations