Business is used in many contexts. For instance, a dictionary defines it as “the practice of making money”. However, when most people think of business, they usually associate it with earning profits or making money. This article discusses the broad range of definitions related to business.
A business is defined by an individual or entity as an individual or group engaged in professional, commercial, or imaginative pursuits. The word “business” refers to the coordinated efforts and actions of persons to make and market goods and services to profit. In simple terms, a business owner is the person who controls the assets of the business and allocates resources to generate profits. In addition, a business plan is used to describe a person’s intent to run a business and to establish financial projections, identify challenges that may arise and seek opportunities for growth.
There are four broad categories of businesses: sole proprietor, partnership, corporation, and cooperative. Each category has common types of characteristics that distinguish them from other businesses. Some of these common types are more apparent than others. For instance sole proprietors are considered to be the most self-sufficient form of business in existence. Partnerships are formed between two or more individuals and may be operated by a board of directors.
A partnership is established by a partnership agreement, which is created by all parties to the transaction. Partnerships are considered to be limited in the sense that only one partner can be involved in the partnership. Examples of partnerships include corporations and limited liability partnerships (LLPs). A corporation is created by a founding document drafted by a Board of Directors. All shareholders in a small business must belong to a corporation or LLC.
A corporation may have only one shareholder, whereas a LLC contains many different shareholders. All partnerships share equal profits. Profits are divided between the partners in a partnership according to a pre-arranged agreement.
Although all business types share some attributes, not all business types share equally in profits. A sole proprietorship is the only form of business that does not have any employees and therefore, profits are solely divided between the owner(s) and the company. A partnership may have employees, but the profit is split with each partner receiving a portion. A corporation may have employees, but all profits are divided among all shareholders. In short, the key to owning a profitable business lies in choosing the right business type.