Corporate structure: Choose the right one

Do you know what the basics of corporate structure are and why it is crucial to choose the best one for you? The right structure can help and grow your business immensely, while the wrong one can bring serious harm to it. Contact us in order to get the optimal corporate structure legal advice.

Here is what you should know before you make a decision.

Corporate structure: Main aspects

A corporate structure usually consists of various departments that contribute to the company's overall mission and goals.

Some common departments are Marketing, Finance, Operations management, Human Resource, IT. These include more, smaller categories, which may vary from company to company.

Typically, there are a CEO, Board of Directors, company presidents, vice presidents, and CFOs. There are many diverse corporate forms. Enterprises can range from single company to multi-corporate conglomerate.

Most corporations have a hybrid structure, combining different models with one dominant strategy.

When it comes to choosing the right corporate structure for your business, it is a good idea to consult a good corporate lawyer. This is an important and strategic decision that could either be beneficial or harmful for the business. Moreover, the corporate structure needs to suit the type of activities, vision and goals of the company.

Company structure types

Typical corporate structures are the following:

Functional structure

This is the most common form of structure in corporations. Employees are categorized based on the nature of work. They have common or related skill sets, which brings harmony within the department.

Such structures generally are characterized by quick spread of information within the department and efficient decision-making process. They are seen in companies with departments like accounting and IT.

Divisional structure

Divisional structures are categorized based on region (also called geographical structure), a specific market or product, or a particular consumer base. These divisions help in meeting the specific demand of a group or area. They might also help in customizations to a certain extent.

Many companies divide their operations based on the geographical regions they cater to, which means they can effectively make changes in the products, approach and policies prevalent in a particular area and increase their sales revenue.

Matrix structure

This structure is a mix of the functional and divisional structures. It usually occurs in big organizations with multiple departments and product lines. Such structures are costly to maintain, but they can be useful and advantageous because they offer decentralization and autonomy in day-to-day operations.

Hybrid structure

A hybrid structure is again a combination of the functional and divisional structures. However, unlike the matrix structure, different departments are categorized as functional or divisional within the same organization. This gives departments the autonomy to choose the kind of structure they want to adopt depending on their needs and requirements.

This type of structure is mostly met in large organizations. It is based on the concept of transfer of power to the lower levels when required.

Management of corporate structure

Every corporation requires a skillful team of human resources to function properly. A well-defined corporate hierarchy is a must for it to operate smoothly. The standard management structure in any organization is the following:

Board of directors

A Board of Directors is usually elected by the shareholders of the company. The board can be composed of “Inside Directors” - persons from the management team like the CEO or the CFO, or “Outside Directors” who are not part of the company. They might be reputable and experienced people.

The leader of the Board, who gets elected and has the most authority, is the Chairman.

The Board of Directors is responsible for the formation and implementation of the business strategy. Moreover, it represents the company to the shareholders and the outside world.

Management team

Next in line is the management team. It is responsible for the everyday functioning of the corporation and maintaining its top and bottom line.

Chief executive officer (CEO)

The CEO is the head of the management team and reports directly to the Board of Directors. The CEO is responsible for the company’s operations and management. The role involves maintaining the balance and cooperation between different departments and units, especially when it comes to the matrix and hybrid structures.

Chief operations officer (COO)

After that is the COO who is responsible for managing the company’s daily operations: sales, marketing, production, etc.

Chief financial officer (CFO)

The CFO is directly responsible for the financial performance of the organization. This includes the making and implementing of the budgets across departments, reviewing their business performance, and taking corrective measures when necessary. Moreover, the CFO looks after the statutory financial reports and the reporting to the appropriate authorities and stakeholders.

After the CFO are the product, departmental and regional managers, and then the rest of the employees.

Choosing a business structure

Now that you know what the main organizational structures are, it is time to decide which one to pick. However, this is not an easy task.

The corporate structure you choose has an impact on everything such as day-to-day operations, taxes, how much of your personal assets are at risk and so on. You should choose a business structure that provides you with the right balance of legal protections and benefits.

It would be wise to consult a good corporate lawyer before you make a decision. An expert can give you the best advice at the right time.

Many business owners make the mistake of underestimating this step when starting a business. Only later do they realize that they might have to restructure their business in order to optimize performance.

Of course, some companies might reach a point when they need to go through the process of corporate restructuring. Sometimes that is because they are experiencing financial difficulties, while in other cases that is the natural next step of the life cycle of a business that constantly grows and evolves.

However, it would be a needless headache to make a hasty decision regarding your corporate structure, which you will regret later and be forced to restructure. Not only that, but it could also lead to great losses for your business.

That’s why the best approach is to consult an experienced lawyer in advance. Together you will determine the best corporate structure for you, which will be truly beneficial and might even reduce your corporate tax.

Contact our law firm now to learn how to make the best decision for your business and optimize expenses.