How to Choose the Right Business Structure


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As you near the point of starting and registering your business, one of the first decisions you have to make is how to legally structure your business.

The most common options for small businesses are a sole proprietorship, or a limited liability company. It’s very important to understand each business type and select the one that fits with your situation and objectives.

The type of business you create determines the types of applications you’ll need to submit. It will also affect the liability you have as a business owner and the taxes you will need to pay.

Here we will focus on the most common three business structures for small businesses: sole proprietorship, partnership, and Limited Liability Company (or LLC).

Popular Small Business Structure

Sole Proprietorship

A sole proprietorship is the simplest and most common structure chosen to start a business. It is an unincorporated business owned and run by one individual with no legal distinction between the business and you, the owner.

You are entitled to all profits and are responsible for all your business’s debts, losses and liabilities.  Because you and your business are one and the same, the business itself is not taxed separately -the sole proprietorship income is your income.

You do not have to take any formal action to form a sole proprietorship. As long as you are the only owner, this status automatically comes from your business activities. In fact, you may already own one without knowing it. If you are a Make Up artist or a Hair Stylist, for example, you are already a sole proprietor.


A partnership is a single business where two or more people share ownership. In general, each partner contributes to all aspects of the business including money, property, and labor or skill. In return, each partner shares in the profits and losses of the business equally.

Because partnerships entail more than one person in the decision – making process, it’s important to discuss a wide variety of issues up front and develop a legal partnership agreement.

This agreement should document how future business decisions will be made, including how the partners will divide profits, resolve disputes, change ownership (bring in new partners or buy out current partners) and how to dissolve the partnership.

Limited Liability Company (a.k.a., LLC)

A Limited Liability Company (LLC) is a flexible form of enterprise that blends elements of partnership and corporate structures.

LLC is almost like the guy that meets in the middle. It is a situation where a person’s financial liability is limited to a fixed sum, most commonly the value of a person’s investment in a company or partnership. If a company with limited liability is sued, then the [claimant]s are suing the company, not its owners or investors.

In Nigeria, you have to register with the Corporate Affairs Commission before you can create any of these business structures.


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