Michael Scott’s Guide to Business Structures
By Anika Goel
Choosing the right business entity is one of the most important decisions entrepreneurs face. The structure you adopt determines how profits are shared, risks are managed, and decision-making unfolds. The four common business entities are sole trader, partnership, privately held company, and publicly held company. To learn about how each of these works in practice, let’s investigate Michael Scott’s Paper Company from The Office.
Partnership: The Original Michael Scott Paper Company
When Michael, Pam, and Ryan launched their venture, they operated as a partnership. A partnership is a for-profit private sector business owned by two or more individuals who share management responsibilities, profits, and liabilities. In this context, shared responsibility meant that Michael acted as the “visionary,” Ryan focused on strategy, and Pam managed admin and sales calls. This delegation of tasks is an advantage of partnerships as it reduces the workload placed on a single person and allows for more efficiency due to the division of labour. Shared profits meant that whatever money came in (mostly through undercutting Dunder Mifflin’s prices) was split among the three of them. Finally, shared risk meant that they were all liable if the company went bankrupt, which it almost did daily. This unlimited liability highlights the most significant risk of partnerships. If the Michael Scott Paper Company went bankrupt, creditors would pursue their personal assets. This means that Michael could lose his condo, Pam could lose her savings, and Ryan could lose his questionable credit line to cover debts.
Sole Trader: Michael Goes Solo
Now, imagine if Michael had decided to start the company alone as a sole trader. In this structure, one person owns and operates the business, keeping all the profits but also carrying the responsibility of all the risks. The main advantage of operating as a sole trader is that Michael would have complete control, making every decision without interference from Pam or Ryan. However, the downside is just as significant: he would also bear unlimited liability as a sole trader.
Privately Held Company: The Friends and Family Version
A privately held company is owned by a small group of shareholders and is not listed on the stock exchange. One of its defining features is limited liability, which protects owners’ personal assets by ensuring they are only financially responsible for the amount they invested in the company.
An advantage of operating as a private company is the potential to achieve economies of scale. Due to their larger size and formal structure, companies are often able to reduce unit costs of production as they grow. For example, it is typically cheaper for a company to borrow money than it is for a sole trader or partnership, as incorporated businesses are viewed as less risky by financial institutions. For the Michael Scott Paper Company, this could have meant securing loans on more favourable terms, bringing down costs, and reinvesting in the business to expand operations. However, privately held companies also face increased complexity. Legal requirements include maintaining corporate records, filing annual reports, and adhering to governance rules. These formalities create bureaucracy, which can slow decision-making and restrict the flexibility enjoyed by sole traders or partnerships.
Publicly Held Company: Michael Scott, CEO
A publicly held company is one whose shares are traded on the stock exchange and can be purchased by the general public. The greatest advantage of becoming a publicly held company is the ability to raise large amounts of capital. With greater financial resources, firms can expand rapidly, invest in new technologies, and compete on a larger scale. Public companies also benefit from economies of scale, as their size often enables them to reduce unit costs and borrow money at lower interest rates due to their credibility. For the Michael Scott Paper Company, going public could have provided the funds to expand beyond Scranton, strengthen its market position, and potentially outcompete Dunder Mifflin.
However, publicly held companies must comply with extensive legal and financial requirements, which creates high levels of bureaucracy and additional costs. They also face intense pressure from shareholders, who expect consistent profits and growth. This reduces managerial freedom, as decisions are closely monitored by a board of directors and influenced by market expectations. In Michael Scott’s case, his impulsive leadership style and Ryan’s schemes would likely have clashed with the need for accountability and investor confidence.
Thus, business entities matter because they shape not only financial risk but also how personalities, whether visionary or delusional, can affect success. In this case, the choice was partnership. In reality, choosing wisely could mean the difference between steady growth and bankruptcy.
