Organizational Structure Summary

In every business, somebody needs to be in charge, and those leaders lead others, who might lead other management, who leads other employees and so on. Who the leaders are and how they manage is, in part, determined by the structure of the organization. The organization also dictates how information flows through the organization and how tasks are delegated. A business’ structure is first regulated by law and then further categorized depending on the functional needs of the company.

Organizational legal structures include sole proprietorship, partnership, limited partnership, limited liability partnership, limited liability company and corporation. Sole proprietorship is the most common business structure, owned by just one person who is personally responsible for all the company's debts and obligations. A partnership is the same as a sole proprietorship, except all the owning partners split the business’ obligations. A limited partnership has some limited partners that are not as responsible for obligations as other full partners. A limited liability partnership shields some partners from debts and obligations incurred by other partners. Owners of limited liability companies (LLC) are allowed to choose how debts and responsibilities are distributed. Corporations are treated as individuals; the company is responsible for its own debt and owners are people who hold shares in the corporation.

Centralized organizations have a few executive figureheads who bear almost all management responsibility. In centralized companies, executives delegate to supervisors, who delegate to managers who oversee employees. Management is clear cut and there is little question of whom is in charge. Decentralized organizations have a less formal management structure; temporary project teams may be responsible for tasks and delegation is often shared.

Many organizations are split in to departments. Departments can be categorized by region, function, project or product. Department managers have control over all the employees in the division, though they report to executives that oversee their division. Benefits of departmentalization include straightforward delegation with no confusion of who is responsible for what tasks. Risks of departmentalization include duplication of activities (when one department does the same thing as another) and segmentation resulting from departments functioning independent of the parent company.

Deciding what types of organizational structures would be best for your company can be daunting. You’ll want to consider several factors, such as how many people own (or will own) the company and what you want your ideal functions of management. Finally, consider how you want work to be divided up and the level of authority and independence you’re willing to offer employees.