Business Organization Ideas

by George N. Root III

Structure is important to an organization from the moment it is legally formed. Structure provides a framework for how a company works internally and how it interacts with clients and vendors. How a business is organized can determine how efficiently it reacts to changes in the marketplace, whether it is competitive and how well different parts of the company communicate.

Legal Structure

The basic kinds of legal business structure are sole proprietorship, general partnership, corporation and limited liability company. The structure you choose will depend on your situation. A sole proprietorship is for a person who owns a business and wants the business profit or losses to show up on her personal tax filings. A partnership entails two or more people who have an ownership stake in the business and want to split the business profit or loss on their personal tax filings. A corporation is created as a separate legal entity that protects the personal assets of the owners by putting liability on the corporation. If someone sues a partnership or sole proprietorship, the personal assets of the owners are at stake. In a corporation, the personal assets of the owners are not part of corporate liability. A limited liability company is a partnership of separate entities that come together in one legal organization. The profits or losses are split between the partners, but the partners' personal assets are not at risk.


A company hierarchy helps to establish responsibility for the various parts of the organization. A hierarchy involves a chain of command that goes from the top of the company down through the various management levels. Executives can examine a business organizational chart of the company hierarchy to determine where managerial snags may arise. Human resources professionals in the organization can use a hierarchy to establish responsibility for the actions of employees and managers that may be a problem for the company.

Functionality Versus Compartmentalization

Compartmentalization of a company involves the assigning of specific tasks to divisions. For example, the payroll division would fall under the accounting department, and corporate security may fall under the human resources department. Each department is free to make its own decisions and develop its own work methods, according to online human resources portal The problem with compartmentalization is that some tasks may get duplicated. For example, the sales department may take on marketing tasks without consulting the marketing department. Creating a structure based on functionality creates a broader set of groups that can encompass a wide set of tasks. Rather than the logistics department, shipping department, manufacturing department and product returns department as you would get with a compartmentalized company, you would have all of these tasks under the single umbrella of the production group. There would be one production manager and a series of sub-managers for the various tasks.

About the Author


Photo Credits

  • Ryan McVay/Photodisc/Getty Images
bibliography-icon icon for annotation tool Cite this Article