What is a Business?
The term business refers to an organization or enterprising entity engaged in commercial, industrial, or professional activities. Businesses can be for-profit entities or they can be non-profit organizations that operate to fulfil a charitable mission or further a social cause. Businesses range in scale from sole proprietorship to international corporations and can range in size from small to large.
Types of Businesses
The most common types of businesses are:
- Sole proprietorship: As the name suggests, a sole proprietorship is owned and operated by a single natural person. There is no legal separation between the business and the owner, which means the tax and legal liabilities of the business fall on the owner.
- Partnerships: A partnership is a business relationship between two or more people who join forces to conduct business. Each partner contributes resources and money to the business and shares in the profits and losses of the business. The shared profits and losses are recorded on each partner’s tax return.
- Corporations: A corporation is a business in which a group of people acts together as a single entity. Owners are commonly referred to as shareholders who exchange consideration for the corporation’s common stock. Incorporating a business releases owners of the financial liability of business obligations. A corporation comes with unfavorable taxation rules for the owners of the business.
- Limited liability companies (LLCs): This is a relatively new business structure and was first available in Wyoming in 1977 and other states in the 1990s. A limited liability company combines the pass-through taxation benefits of a partnership with the limited liability benefits of a corporation.
Various Business Sizes
- Small and mid-size enterprises (SMEs) are businesses that maintain revenues, assets or a number of employees below a certain threshold. Each country has its own definition of what constitutes a small and medium-sized enterprise (SME). Certain size criteria must be met and occasionally the industry in which the company operates in is taken into account as well.
Though small in size, small and mid-size enterprises (SMEs) play an important role in the economy. They outnumber large firms considerably, employ vast numbers of people and are generally entrepreneurial in nature, helping to shape innovation.
- Larger businesses, which commonly operate as corporations, are those that employ more than 1,000 people and have fixed assets of more than 10 crore in value. They may issue corporate stock to finance operations. In this case, the company is publicly traded and has certain reporting and operating restrictions, unlike smaller businesses that can operate independently of regulators.