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Legal Business Structures

23rd November 2009
By Peter Gitundu in Business Law
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When forming a business, whether big or small, one must have a structure in mind. The structure governs management and shows who is answerable to whom. it also helps the government to determine how much tax the business is supposed to pay. The structure will also help you know how far your liability to the business extends. Liability also helps determine how profits and losses are shared among the parties involved.

Other factors that are governed by the structure of a business include, but are not limited to risk and control, continuity of the venture, transferability and formality, which refers to who is responsible for correspondences between the business and other stakeholders like creditors, debtors and clients. There are many types of legal business structures, but the most common are the sole proprietorship, limited liability Company, partnership (general and limited) and the corporations. In terms of management, the sole proprietorship is managed by one person who is the sole owner of the venture. He is responsible for all correspondence and al decision making. As for the partnership, the roles of management are shared equally among the partners.


The limited liability company is formed through sale of shares to interested members. The company is called limited because a partner or a stakeholder is only worth the number of shares that they have in the company. Their personal assets cannot be sold off to cater for any losses or liabilities in the company.

In terms of transferability, the sole proprietor can transfer or hand over his business to any person he wishes to. He needs to consult any other party as the decision is solely his. As for the other legal business structures, one needs to give a notice when they need to transfer ownership and this must be approved by other stakeholders.

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