Organizing Your Organization: The Legal Stuff

Wednesday, August 25th, 2010

A few quick comments on the legal aspects of organizing your business…  There are several forms your business can take for legal and tax purposes.  Those forms include, but may not be limited to:

  • Sole Proprietorship
  • Partnership
  • Limited Liability Company (LLC)
  • Sole Proprietorship LLC
  • Professional LLC
  • Professional Corporation
  • Subchapter S Corporation
  • Subchapter C Corporation
  • For Profit Corporation
  • Not For Profit Corporation
  • Non-profit Corporation
  • Charitable Corporation

I’m only going to give you one piece of advice on the best legal structure for your company.  Talk to your family attorney if you’re a small or home-based business or to an attorney specializing in business and tax law if yours is a mid-sized or large organization.

My partners and I are organized as a subchapter S corporation that provides professional consulting services, and we each own stock representing our investment in money and intellectual property.  This form limits our liability and passes tax reporting responsibility to us individually.  I also have a sole proprietorship LLC which offers consulting and technical services.  It too limits personal liability and is disregarded for tax purposes.  Suffice it to say we had the advice of a very experienced family and estate planning attorney and certified public accountant when legally forming our businesses.

However, my purpose with this blog is to deal with structuring your organization for performance.  So here’s a very important “Better Business Basic” for you, leave the legal stuff to the experts!

Organizing Your Organization

Wednesday, August 25th, 2010

Sorry about the time away from the blog folks, but I’m happy to be back and ready to shift gears.  We’re going to focus more on the people side of your business before getting back to processes; starting with structuring your business.

The right structure will help your business do the right things right.  It will free up your people to achieve their full potential, and your business to achieve its full potential.  It will provide for performance, management, and direction.  It will provide for effective communication and motivation.  It will directly link your team members to your purpose and strategy.

Much discussion in administrative theory and organizational behavior revolves around the idea of vertical or flat organizations and the “chain of command”; in other words, many or few management layers, and what is the “right” number of people reporting to one person.  There are other important ideas like self-directed work teams and quality circles which may affect the successful achievement of your purpose.

Keeping this simple, the answer to the question, “What is the right organization structure for my business?” is; it’s the one that best suits the nature of your organization’s purpose and the activities necessary to fulfill that purpose.  In other words, it’s a “form follows function” approach.  You’ve defined your conceptual foundation, developed your strategy, and identified the systems and processes necessary to carry out your purpose.  Now you’ll create a form for your organization that supports the essential functions (systems and processes) you’ve identified.

Think of your organization’s structure much as you would the other systems and processes necessary to achieve your goals.  There should be no self-justifying element of the structure; no extra layers of management; no staff members searching for a purpose.  There should only be a sufficient number of competent people in the right positions such that through effective interaction, they get the job done without wasted time, effort, and re-work.  Seems like common business sense to me.

From the largest multi-national corporation to the sole proprietorship working out of a home office; all have the same need for structure.  The organization needs direction in the form of a mission, vision, values, purpose, strategy, culture and policies; all of which guide people in performing their jobs.  The organization needs management of its resources, systems, processes, and risks to keep everyone focused on objectives within the constraints imposed by the established direction.  And the organization needs performance of tasks and activities using appropriate behaviors and competencies to accomplish the purpose it is intended to serve.

The key words are direction, management, and performance.  In a small business the sole proprietor may be responsible for all three elements of structure.  In large organizations direction is handled by a board of directors, management by a leadership team, and performance by the rest of the team.  In many organizations using a participative approach there is a large amount of crossover between these structure elements, much less so in the autocratic organization.  Regardless, these are the essential elements of an organization’s structure; as described by the late Peter Osterio in his seminar on “practical governance and risk management”.

So be thinking about your organization’s structure in terms of: “Form Follows Function”, Direction (Governance), Management, and Performance until next time, when we’ll fill in some details.