How to Define a Business
Business refers to any type of enterprise, association or institution that makes money or produces results. A business is also defined as an unincorporated body corporate, partnership or joint venture, which conducts commercial, agricultural, financial or administrative activities in order to produce a product or service, sells its output or performs the operations to carry on business. The production, marketing and sales processes in any business may be classified as personal, business or financial activities. In simple terms, the term “business” means any entity that brings into existence or produces results (a transaction or activity) for which money is received or expended.
According to the United States Bureau of Labor Statistics, there are presently approximately 2.2 million businesses in the United States. Nearly all businesses engage in some form of commerce or production of goods and services. Among these businesses, women-owned small businesses account for nearly half (about 40%) of all small businesses in the country. There are many types of businesses, but the most common are retail stores, manufacturing, transportation, construction, utility services, warehousing, apparel, mining, agriculture, oil extraction, banking, financial institutions and software. The majority of the total number of businesses in the United States is classified as either a producer distributor or buyer of goods for retail sale. Other industries that are included in the business definition are: entertainment and recreation, advertising and marketing, healthcare, personal and business services, information technology, communications, technology support, media, consumer products, transportation, warehousing and transportation.
Every year millions of people make purchases from small businesses that are either owned by a single person or by many owners. These businesses are classified as either sole proprietorship or partnership businesses. Partnerships have one or more members that share equally in the profits created by the business. Sole proprietorships are run by a single person and have no partners. Dividing the profits of a partnership between several owners will show up on the books as revenues divided between them. These differences allow each business entity to be viewed on a totally different scale.
An important consideration in determining the classification of a business is its primary activity. Primary activities include selling of goods, production of goods, rental of goods and payment of debts. The sales of goods and production of goods by a business are often used to show where profit is made from a business. Rental of goods and payments of debts are often used in determining the classification of the business as a lender or borrower by using the word ‘loan’ and the word ‘debt’.
A second way of classifying a business’s nature is to analyze whether or not the business produces or sells a product or service and whether it is an active agent or instrument in the generation of income and profit. A service such as the provision of accounting, bookkeeping, customer service or payroll is often used to show how an entity earns money. An instrument used to produce money such as a factory or warehouse is often classified as a business for the purpose of receiving payments. Many businesses that do not have active money generating capabilities are classified as passive entities because they do not have the ability to generate profit or pay salaries.
A final way to categorize a business is to determine whether it is a partnership. When a business is formed as a general partnership, one or more partners form an entity with the business. The partnership relationship is established on the basis of legal rights and responsibilities established in a written agreement between the general partner and the other partners. A general partnership will only be considered a partnership if it has the services or goods that it brings to the table. In order for a general partnership to have legal rights and responsibilities, all partners must be legally related to each other, unless there is a unique situation such as the existence of an inherited property, which would require a completely separate partnership for the time being.