There are numerous types of organizations. Some do not allow business proprietors a great deal of autonomy in managing and operating the company, while others do. Some of them provide substantial protection against legal liability, while others do not. While some of them are rigorously monitored, others are not. In addition to these differences, our country’s tax system treats various business groups differently with regard to taxes. Before deciding which legal form to use, a person who wishes to launch a business must carefully consider the aforementioned factors. In this article, we will discuss about structure of business organizations in brief with examples for your better understanding.
The structure of a business is just as essential as its products, marketing strategy, and long-term objectives. A solid framework require for a business to be successful in recruiting and retaining talented employees and establishing an effective organizational structure. Businesses typically utilize one of four primary organizational systems to operate. Each has unique advantages and disadvantages. Because a poor organizational structure can lead to confusion among employees, poor decisions by management, and, ultimately, less-than-ideal results for a business, it is crucial that you choose the right one for your organization.
Structure of Business Organizations
When establishing a business, one of the first considerations should be its legal structure. The federal income tax return form required for your business depends on the nature of your business. The most common business structures include sole proprietorships, partnerships, corporations, and S corporations. The business entity permitted by state law is a Limited Liability Company. (LLC). When selecting a corporate structure, it is essential to consider both the legal and tax implications. To learn more, take a look at these structure of business organizations.
Partnership in General
A business owned by multiple individuals is referred to as a “general partnership.” It is typical for business partners to execute a partnership agreement outlining their respective rights and responsibilities. In a partnership, as in a sole proprietorship, the general partners are solely liable for the company’s debts and expenses. Generally speaking, partners have joint and several liability. This means that a partner can held liable for all partnership expenses and must ask the other partners to pay their portion.
As long as everyone is on the same page, forming partnerships can accomplish with a great deal of flexibility. Also, the rule regarding partnerships is not too difficult to comprehend. The Uniform Partnership Act is the primary statute governing partnerships. It varies significantly between states.
Because partnerships are deemed flow-through entities, which means that profits and losses are passed through to the entity’s owners, who are then taxed on them, a partnership’s profits and losses are reported at the level of the individual partner rather than the partnership itself. According to some, a law firm is the finest example of a general partnership.
Structure of Function
In the actual world, four fundamental types of organizational systems frequently employ. The first structure form, which is also the most prevalent, is an advantageous structure. This organizational structure, also known as a bureaucratic organizational structure, divides a corporation into sections according to the level of specialization of each employee.
Nearly all small and medium-sized enterprises use a functional organizational structure. When an organization employs a bureaucratic organizational structure, marketing, sales, and operations are handled by separate departments. This is another structure of business organizations.
Structure of the Matrix
The matrix framework create when the functional and divisional elements are combined. This system allows departments to make decisions independently, gives them more freedom, and facilitates communication between departments.
Consequently, productivity and creativity increase. Although this structure has many advantages, it is more expensive and may lead to complications between horizontal product lines and vertical processes.
Organizational Structure Based on Teams
Think about a team-based organizational structure as an example. It should not come as a surprise that employees in a team-based organizational structure are frequently assigned to diverse teams, such as tiger teams and Scrum teams.
Using a team organizational structure, which places a greater emphasis on problem-solving, collaboration, and empowering individuals, is likely to disrupt the traditional hierarchy. This is good structure of business organizations.
Flat Structure
Typically, functional organizations have a hierarchy, but the flat form eliminates this. Due to this, management is no longer unified, and there is no longer a need for intermediate and upper-level managers. Employees can discuss ideas and initiatives directly with their coworkers, giving them the authority to act as their own bosses. Employees have a great deal more latitude, but this requires a team of self-reliant individuals who do not require daily oversight from managers.
The majority of incubators and businesses have flat organizational structures because their primary focus is on designing products and services, rather than producing or administering them hierarchically. There are four organizational systems that can be effective in business, depending on the circumstances. The majority of organizations employ functional or divisional structures, but flat organizational structures are becoming increasingly prevalent in contemporary businesses.
Organizational Structure in Hierarchy
In traditional hierarchical organizations, employees and their responsibilities are frequently organized according to the order in which they report to higher-ups. In the military, the government, and other large organizations, a hierarchy is used to demonstrate how much control individuals have over their employment and how they compare to other employees.
Typically, hierarchical systems have multiple levels of management, which makes them more susceptible to bureaucracy and the formation of divisions, both of which make it more difficult for teams to communicate with one another. Additionally, hierarchical systems are more likely to have multiple strata. This is the structure of business organizations.
Geographic Structure of Organization
Organizations that operate in numerous regions of the globe may sometimes organize themselves by region. This do to facilitate logistics and changes in consumer preferences based on location.
Typically, in a system organized by location, a single individual will be in control of everything. This organizational structure is common among businesses that operate in more than one city or state and serve clients in various parts of the country or in multiple states.
Divisional Structure
The second variety is prevalent in large corporations with numerous business units. This method, also known as the divisional or multidivisional (M-Form) structure, entails organizing a company’s leadership team according to the products, initiatives, or subsidiaries that each member is responsible for.
Johnson & Johnson is an excellent example of such a partnership. Due to the diversity of its products and business lines, the company has structured itself so that each business entity operates independently and has its own president.
Improved Communication
Teams and divisions can communicate more effectively with one another if there is an organizational hierarchy. However, this varies from business to business and depends on the organization’s structure. Once the various groups and individuals have been assigned their positions, others within the organization will know precisely whom to contact for specific issues.
For example, if you operate on a team with a single supervisor, you will always know who to inform about issues. Similarly, anyone in the marketing department who has questions about the project’s design is aware that they should contact the art department.
FAQ
What Constitutes Organizational Structure?
A company’s organizational framework consists of six components: job design, job classification, department design, organizational hierarchy, authority delineation, and departmental coordination. Knowing what to concentrate on allows one to finish activities faster and with greater efficiency.
What Effect does Size have on Organizational Structure?
Due to the difference in size, when a small organization develops into a large one, the structure of business organizations will change significantly. In order for the organization to function effectively, more work will need to specialize, more departments will need to establish, and more regulations will need to implement.
What is the Significance of Structure in Business?
Your business nature affects personal liability, taxes, earnings, and required documentation. Before you can register your business with the state, you must determine the nature of your enterprise.
Final Words
Invest some time and effort in researching the organizational models that could perform best for your company. In the end, how your firm is set up will determine the goods and services you offer to customers. Managers must ensure employees understand company operations and leadership structure for effective functioning. A predetermined structure with effective communication processes enables companies to maximize limited resources. Continue reading to become an expert on structure of business organizations and learn everything you should know about it. Explore the stages of business growth topic from a historical perspective with this engaging post.
