What does a business mean? A business is simply defined as a legally registered company or unincorporated sole proprietorship organized for the business of commerce. Companies can be either for-profit or non-profit entities that perform primarily to meet a social need or further an environmental mission. A corporation may also be a partnership where one or more partners have equal right to share in the profits while others have none. But more than anything else, a business is defined as any company that engages in commerce.
There are many types of businesses. Some of the most common ones include sole proprietorships, partnerships, corporations, limited liability companies (LLCs), partnerships, joint ventures, franchises, proprietor-employee, franchisee-owner, and associations. Each of these entities has different characteristics, features, and rules. Each also exhibits characteristic traits common to all businesses.
A sole proprietorship is a legal entity by itself. It continues to exist as the property of only one person who is considered the sole owner. The sole proprietor owns the entire assets of the business and incurs liabilities and debts only to that person. Solicitors, corporate partners, and limited liability partnerships are examples of sole proprietorship.
In a partnership, there are two parties who become general partners. Partnerships create numerous opportunities for earning profits, including the ability to control or participate in the management of the business and its products or services. General partnerships also create the opportunity to use the assets and profits of the partnership to finance projects and activities for the benefit of all parties.
In contrast, a corporation is created by legislation and is taxed solely on the basis on its income or assets. Unlike a partnership, a corporation is taxed on a regular basis. There may be instances where a corporation may elect to be an unincorporated public limited liability company (UMLC).
Business corporations are different from partnerships in the way that dividends are taxed. Business corporations are formed for the benefit of all stakeholders, with no one individual or group owning and controlling the business. They also are taxed on these profits according to the calendar year in which they are made. UMLs and LLCs are considering pass-through entities for personal income tax purposes and therefore are not taxed for corporate profits.
The ultimate purpose of establishing a business corporation is to create a separate legal entity separate from the individuals that control it. Business corporations help build stronger ties between stakeholders, share holders, employees and suppliers and help to support important economic activities such as research and development (R&D), global business alliances and the creation and diversification of the economy. It also provides the flexibility to accommodate sudden unexpected events that can affect a business. By creating this corporate shield, corporations protect their most valuable assets – their reputation, goodwill and investment in their staff. The various duties and obligations of the business owners help to maintain and protect the interests of all stakeholders.
A business can be at risk for many reasons and to a large extent, these risks can be attributed to a businesses financial structure. At times businesses may face financial risk because they take on too much debt or have an expensive initial investment. Other times businesses may face financial risk because they fail to comply with regulations and rules set by the jurisdictions in which they operate. At other times businesses may be exposed to business risk through indirect means. For example, suppliers sometimes influence suppliers to pass on bad products or prices. Sometimes companies that are publicly held are at risk of business risk because they can lose control of their stock.