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Corporate structures demystified: What you need to know?

Businesses can choose from various corporate structures, and knowing which one is right for your company can be unclear. This article will demystify corporate structures and explain the available different types. We’ll also look into the benefits and drawbacks of each type so that you can make an informed decision about which structure is best for your business.

What is corporate structure?

A corporate structure is how a company is organized, and it can significantly impact the business. The corporate structure determines the hierarchy of the company, how decisions are made, and how profits are distributed. There are several types of corporate structures, each with advantages and disadvantages.

A typical corporate structure comprises various departments contributing to the company’s mission. The most common departments in each business include Finance, Marketing, Human Resources, and IT. These divisions represent the major departments found in a publicly traded company. Usually, you’ll find smaller departments within autonomous firms. Most businesses have a CEO and a Board of Directors, which generally consists of the directors of each department, most likely with the addition of a few non-executive directors.

Corporate structure types

When choosing a corporate structure for your business, it is important to consider the size and scope of your company. You should also think about the level of risk you are willing to take on, and how much control you want to have over the business. The type of corporate structure you choose will significantly impact how your business is run, so it is important to make an informed decision.

1. Functional structure

With the help of a functional structure, companies can communicate more efficiently and make decisions better. An example would be an IT department and an Accounting department, each with their own set of tasks that they must complete for company success but also share some overlap to oversee both areas properly – this type of sharing leads them down an efficient path where all aspects come together smoothly without much delay or confusion.

2. Divisional structure

This business structure is designed to group similar products or services into market, product, and customer groups. Divisions are built for each group that can produce a matching set of materials tailored towards their individual needs; this type of emergent is commonly seen in geographical structures where regions provide goods specifically to locals living there (e.g., localization).

3. Matrix structure

Matrix structures are a combination of functional and divisional units. This structure allows decentralized decision-making, greater autonomy for each employee/department within the company and increased interactions between departments, which can lead to productivity increases. Managers need to work on more due diligence when creating a matrix structure so they don’t incur too much cost or result in conflicts amongst vertical functions versus horizontal product lines.

Matrix structure

4. Hybrid structure

Like the Matrix Structure, Hybrid Structure combines functional and divisional structures. A Hybrid Structure divides its activities into departments that are either functional or divisional. This structure is an excellent way to maximize the use and sharing of resources within each function while allowing for specialization in different divisions. This type of organization has been widely adopted by many large organizations alike!

What are the levels of corporate organizational structure?

Most corporations have implemented a two-level corporate hierarchy. The first one includes the board of governors or directors (elected by the corporation’s shareholders), followed by the management. 

The board of directors comprises two types of representatives – inside directors like a CEO, CFO, or another person who is invested in the daily activities of the corporation, as well as outside directors. An outside director or representative is considered independent of the company. Last but not least, the Chair, who’s technically the leader of the corporation, the board chair is responsible for running the board smoothly and effectively.

The board’s role is to oversee the corporation’s management team, ensuring that the shareholders’ interests are looked after. 

The second level, therefore, consists of the management, who are directly responsible for the company’s daily operations and profitability. This includes the top manager, Chief Executive Officer (CEO), and Chief Operations Officer (COO), who is responsible for the corporation’s operational operations and provides feedback to the CEO. As well as the Chief Financial Officer (CFO), the CFO is responsible for reviewing and analyzing financial data, preparing budgets, monitoring costs, and reporting financial performance.

Chief Executive Officer (CEO)

The CEO of a corporation is responsible for implementing decisions made by the board and efficiently running operations. They have ultimate authority over all aspects, including strategy development and day-to-day management tasks like hiring new employees or coordinating supply runs with suppliers. Often referred to as the company’s president.

Chief Operations Officer (COO)

The COO is the brains behind a company and does not shy away from hands-on work. They provide feedback to their CEO on what needs improvement while managing day-to-day activities. The COO looks after marketing, sales, production, and personnel issues. Often referred to as the company’s vice president.

Chief Financial Officer (CFO)

The CFO is responsible for analyzing and reviewing financial data, reporting performance measures to the board of directors (and regulatory bodies like the SEC), and preparing budgets that will ultimately lead to profitable investments by company executives. As such, the CFO must monitor expenditures within these constraints while ensuring integrity across all aspects, including looking out internally and externally.

What are the benefits of a corporate structure?

The organizational structure is a crucial component of any company. Not only does it define the hierarchy, but it also allows for payroll purposes and sets salary grades throughout each position in your organization. The company’s operations will be more efficient and effective by breaking them down into different departments. This way, all the employees can work together seamlessly to perform their tasks efficiently without getting in each other’s way or wasting time on unproductive meetings about things that don’t matter to certain departments.

A clear and objective organizational structure informs employees on how to do their jobs.

LEI in corporate structure

The Legal Entity Identifier initiative was created after the 2008 global financial crisis, hoping to avoid any future global economic shocks of that severity. To create more transparency within the Global Financial Markets, the LEI code is now essential for legal entities that operate within today’s financial system.

A company’s LEI record will contain public information accessible through a global database. The information is divided into two parts. First is the business card information available with the LEI reference data, e.g., the official name of a legal entity and its registered address, called Level 1 data. This provides an answer to the question of  ‘who is who.’

In addition, the LEI data pool includes the parental (Level 2) data that answers the question of ‘who owns whom.’

As a result, the Global Legal Entity Identifier Foundation (GLEIF) has been set up to offer free data, that allows corporate dots to be connected globally based on open, standardized, and high-quality LEI data.

The collected information is published in the Global LEI System and, therefore, freely available to public authorities and market participants. At this stage, the Global LEI System will only record relationship data that can be made public, under the applicable legal framework.