The Different Main Types of Business Structure

A business can be defined as any type of organization that undertakes specific activities for earning profit such as production, business development, and management. A company is also often referred to as an organized set of activities and facts which are undertaken for earning profit and is designed to generate revenue. The term “business” was first used in a technical way to define something done for the benefit of the people or group; today, however, “business” refers to a specific activity or process. The activity of a business can be considered as something that satisfies certain criteria, the four main criteria for which businesses can be divided into various types.

Types of Businesses There are different types of businesses, but the most common ones are sole proprietorship, partnership, business structure, and financial modeling. Sole proprietorship is one of the oldest forms of business and usually requires only a single shareholder to function. These types of businesses are referred to as “innovative” or “fresh idea” companies because most of them are started from scratch by a singular owner with limited experience in the industry. On the other hand, in a partnership business, at least two individuals share in the profits. Most companies like financial modeling, which refers to the processes applied in accounting and management of financial assets and liabilities of a company or individuals.

Common Types of Businesses There are several other common types of businesses, which are very popular nowadays. These include services, manufacturing, investment, property, franchise, intellectual property, marketing, and customer service industries. Almost all these types profit from the sale of a product or service to customers. Some companies, like a service business or an intellectual property business, earns profits by providing a service to customers that result in them spending money. Franchises are types of businesses that refer to the purchase of a brand name or a specific piece of equipment from a company that manufactures that brand or equipment.

The Profit As You Know How principle is one of the most prominent theories in business, and this principle states that profits are earned when the entities involved in the business do what they can to maximize the profits of their stakeholders. In essence, this means that the profits belong only to the entity that employs the formula to calculate its profits, not to the shareholders. Some of the factors considered by this theory include the cost of acquisition, the revenue that can be earned, the cost of production, and the ability of the entity to control the distribution of profits. For instance, if an entity employs an expensive formula for calculating its profit, it will realize lower profits than what it can expect if it uses a less expensive formula. This means that there are some entities that cannot earn the profit that they should, which is the main reason why the law restricts corporations from earning profits through the use of their logo or brand name.

Many non-profit businesses are subject to the same problems as businesses that are run by individuals, and a major reason behind this is the ratio of profit that they are experiencing. Since the profit of the non-profit company is much lower than that of the business run by an individual, the government takes strict measures to ensure that the non-profit does not continue to receive public funds in the form of loans without performing the required services. Since non-profit companies cannot engage in the same activities that profit-oriented businesses can, they are also prevented from receiving grants from the government, which is another way of ensuring that they do not abuse the system. As such, the concept of sole proprietor business has been adopted to limit the number of these non-profit organizations.

Aside from the sole proprietorship business, there are other main types of business structures, and among them are the partnership, corporation, limited liability company, and limited liability partnership. Each of these main types of business organization has its own advantages and disadvantages, which mean that each should be chosen based on the situation that the business needs to operate in. Furthermore, each of these main types of business structure requires different sets of licenses, which means that individuals who want to start their own business need to obtain the appropriate licenses before they can run it. All of these factors make business ownership complex and can pose great risks to the owner.