Business Structure

What Does Business Structure Mean?

A business structure is a legal framework for commerce that is recognized by the law. This structure, along with the nature of the business, is often presented before a legal authority to obtain a permit to operate.

Insuranceopedia Explains Business Structure

Some of the more common business structures include sole proprietorships, partnerships, and corporations. Each business structure has distinct responsibilities, including how taxes are paid and how earnings are distributed. For instance, in a corporation, the entity itself pays the taxes, not the individual shareholders. In contrast, in a sole proprietorship, the profits and tax burden are passed on to the proprietor.

The structure a business chooses also affects what insurance it needs and how policies are written, which is why coverage options for a sole proprietor often look different from those built for an LLC. Owners weighing one structure against another usually have to think about business insurance at the same time, since liability for debts and lawsuits sits with different parties depending on how the company is set up.