Basic Forms Business of Ownership – Types of Business Entity

A business, also known as enterprise or firm is an organization designed to provide goods, services, or both to consumers. Businesses are predominant in capitalist economies, in which most of them are privately owned and formed to earn profit to increase the wealth of their owners. Businesses may also form not-for-profit or be state-owned. A business owned by multiple individuals may be referred to as a company, although that term also has a more precise meaning.

Although forms of business ownership vary by jurisdiction, there are several common forms:

Sole proprietorship:

A sole proprietorship is a for-profit business owned by one person. The owner may operate on his or her own or may employ others. The owner of the business has unlimited liability for the debts incurred by the business.

Partnership:

A partnership is a for-profit business owned by two or more people. In most forms of partnerships, each partner has unlimited liability for the debts incurred by the business. The three typical classifications of partnerships are general partnerships, limited partnerships, and limited liability partnerships.

Corporation:

A corporation is a limited liability business that has a separate legal personality from its members. Corporations can be either privately-owned or government-owned, and privately-owned corporations can organize either for-profit or not-for-profit. A for-profit corporation is owned by shareholders who elect a board of directors to direct the corporation and hire its managerial staff. A for-profit corporation can be either privately held or publicly held.

Cooperative:

Often referred to as a co-op, a cooperative is a limited liability business that can organize for-profit or not-for-profit. A for-profit cooperative differs from a for-profit corporation in that it has members, as opposed to shareholders, who share decision-making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy.

Classifications

Financial businesses include banks and other companies that generate profit through investment and management of capital.
Information businesses generate profits primarily from the resale of intellectual property and include movie studios, publishers and packaged software companies.
Manufacturers produce products, from raw materials or component parts, which they then sell at a profit. Companies that make physical goods, such as cars or pipes, are considered manufacturers.
Real estate businesses generate profit from the selling, renting, and development of properties, homes, and buildings.
Retailers and Distributors act as middle-men in getting goods produced by manufacturers to the intended consumer, generating a profit as a result of providing sales or distribution services. Most consumer-oriented stores and catalog companies are distributors or retailers.
Service businesses offer intangible goods or services and typically generate a profit by charging for labor or other services provided to government, other businesses, or consumers. Organizations ranging from house decorators to consulting firms, restaurants, and even entertainers are types of service businesses.
Transportation businesses deliver goods and individuals from location to location, generating a profit on the transportation costs.
Utilities produce public services such as electricity or sewage treatment, usually under a government charter.
There are many other divisions and subdivisions of businesses. The authoritative list of business types for North America is generally considered to be the North American Industry Classification System, or NAICS. The equivalent European Union list is the Statistical Classification of Economic Activities in the European Community ( NACE ).

Management

The efficient and effective operation of a business, and study of this subject, is called management. The main branches of management are financial management, marketing management, human resource management, strategic management, production management, operations management, service management and information technology management.

Theory of the firm

Most legal jurisdictions specify the forms of ownership that a business can take, creating a body of commercial law for each type.

The major factors affecting how a business is organized are usually:

The size and scope of the business firm and its structure, management, and ownership, broadly analyzed in the theory of the firm. Generally a smaller business is more flexible, while larger businesses, or those with wider ownership or more formal structures, will usually tend to be organized as corporations or ( less often ) partnerships. In addition, a business that wishes to raise money on a stock market or to be owned by a wide range of people will often be required to adopt a specific legal form to do so.

Private profit-making businesses are different from government-owned bodies. In some countries, certain businesses are legally obliged to be organized in certain ways.
Limited liability Corporations LLC, limited liability partnerships, and other specific types of business organization protect their owners or shareholders from business failure by doing business under a separate legal entity with certain legal protections. In contrast, unincorporated businesses or persons working on their own are usually not so protected.
Tax advantages. Different structures are treated differently in tax law, and may have advantages for this reason.
Disclosure and compliance requirements. Different business structures may be required to make less or more information public ( or report it to relevant authorities ), and may be bound to comply with different rules and regulations.
Many businesses are operated through a separate entity such as a corporation or a partnership ( either formed with or without limited liability ). Most legal jurisdictions allow people to organize such an entity by filing certain charter documents with the relevant Secretary of State or equivalent and complying with certain other ongoing obligations. The relationships and legal rights of shareholders, limited partners, or members are governed partly by the charter documents and partly by the law of the jurisdiction where the entity is organized. Generally speaking, shareholders in a corporation, limited partners in a limited partnership, and members in a limited liability company are shielded from personal liability for the debts and obligations of the entity, which is legally treated as a separate person. This means that unless there is misconduct, the owner’s own possessions are strongly protected in law if the business does not succeed.

Where two or more individuals own a business together but have failed to organize a more specialized form of vehicle, they will be treated as a general partnership. The terms of a partnership are partly governed by a partnership agreement if one is created, and partly by the law of the jurisdiction where the partnership is located. No paperwork or filing is necessary to create a partnership, and without an agreement, the relationships and legal rights of the partners will be entirely governed by the law of the jurisdiction where the partnership is located.

A single person who owns and runs a business is commonly known as a sole proprietor, whether that person owns it directly or through a formally organized entity.

A few relevant factors to consider in deciding how to operate a business include:

General partners in a partnership ( other than a limited liability partnership ), plus anyone who personally owns and operates a business without creating a separate legal entity, are personally liable for the debts and obligations of the business.
Generally, corporations are required to pay tax just like real people. In some tax systems, this can give rise to so-called double taxation, because first the corporation pays tax on the profit, and then when the corporation distributes its profits to its owners, individuals have to include dividends in their income when they complete their personal tax returns, at which point a second layer of income tax is imposed.
In most countries, there are laws which treat small corporations differently than large ones. They may be exempt from certain legal filing requirements or labor laws, have simplified procedures in specialized areas, and have simplified, advantageous, or slightly different tax treatment.
To go public ( sometimes called IPO ) — which basically means to allow a part of the business to be owned by a wider range of investors or the public in general—you must organize a separate entity, which is usually required to comply with a tighter set of laws and procedures. Most public entities are corporations that have sold shares, but increasingly there are also public LLCs that sell units ( sometimes also called shares ), and other more exotic entities as well ( for example, REITs in the USA, Unit Trusts in the UK ). However, you cannot take a general partnership public.
Commercial law Commercial law

Most commercial transactions are governed by a very detailed and well-established body of rules that have evolved over a very long period of time, it being the case that governing trade and commerce was a strong driving force in the creation of law and courts in Western civilization.

As for other laws that regulate or impact businesses, in many countries it is all but impossible to chronicle them all in a single reference source. There are laws governing treatment of labor and generally relations with employees, safety and protection issues ( Health and Safety ), anti-discrimination laws ( age, gender, disabilities, race, and in some jurisdictions, sexual orientation ), minimum wage laws, union laws, workers compensation laws, and annual vacation or working hours time.

In some specialized businesses, there may also be licenses required, either due to special laws that govern entry into certain trades, occupations or professions, which may require special education, or by local governments. Professions that require special licenses range from law and medicine to flying airplanes to selling liquor to radio broadcasting to selling investment securities to selling used cars to roofing. Local jurisdictions may also require special licenses and taxes just to operate a business without regard to the type of business involved.

Some businesses are subject to ongoing special regulation. These industries include, for example, public utilities, investment securities, banking, insurance, broadcasting, aviation, and health care providers. Environmental regulations are also very complex and can impact many kinds of businesses in unexpected ways.

As noted at the beginning, it is impossible to enumerate all of the types of laws and regulations that impact on business today. In fact, these laws have become so numerous and complex, that no business lawyer can learn them all, forcing increasing specialization among corporate attorneys. It is not unheard of for teams of 5 to 10 attorneys to be required to handle certain kinds of corporate transactions, due to the sprawling nature of modern regulation. Commercial law spans general corporate law, employment and labor law, health-care law, securities law, M&A law ( who specialize in acquisitions ), tax law, ERISA law ( ERISA in the United States governs employee benefit plans ), food and drug regulatory law, intellectual property law ( specializing in copyrights, patents, trademarks and such ), telecommunications law, and more.
What where how who why free from the official website 2011.

Related items

• Sole Proprietorship
• How to Form a LLC

Sole proprietorship

A sole proprietorship, also known as a sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business. The owner receives all profits ( subject to taxation specific to the business ) and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor’s. This means that the owner has no less liability than if they were acting as an individual instead of as a business. It is a sole proprietorship in contrast with partnerships.

A sole proprietor may use a trade name or business name other than his or her legal name. In many jurisdictions there are rules to enable the true owner of a business name to be ascertained. In the United States there is generally a requirement to file a doing business as statement with the local authorities. In the United Kingdom the proprietor’s name must be displayed on business stationery, in business emails and at business premises, and there are other requirements.

Advantages
There are many advantages of corporations that are described in that article; chiefly they are the ability to raise capital either publicly or privately, to limit the personal liability of the officers and managers, and to limit risk to investors.

The disadvantages of corporations are advantages to proprietorship: reduced cost of a business, as corporations must do many things like purchasing, accounting, and legal actions in more expensive ways and are subject to special taxes and fees; easier and cheaper to start and discontinue without required fees and legal expenses; and easier management, particularly when a sole owner wishes to have exclusive control, as most corporations are required to be controlled by a board of directors of several persons.

Disadvantages

Raising capital for a proprietorship is more difficult because an unrelated investor has less peace of mind concerning the use and security of his or her investment and the investment is more difficult to formalize; other types of business entities have more documentation.

As a business becomes successful, the risks accompanying the business tend to grow. One of the main disadvantages of sole proprietors is unlimited liability where the owner’s personal assets can be taken away. This is particularly true for wrongdoing or liabilities created by employees; a corporation only partially shields an owner or officer for his own actions according to the principle of piercing the corporate veil. Sole proprietors often do not for significant periods and lack continuity. Also, being alone in business, sole proprietors generally lack money which leads to failure. The small size of the business limits the breadth of management skills because there are fewer people working together. As employees generally seek stable employers, small independent businesses that have a high chance of failing have more difficulty attracting skilled people. Certain business structures such as Limited Liability Company allow shielding of personal assets, and sometimes, favorable tax treatment, but there are disadvantages and limitations also.

Lending

Holding everything else constant, small corporations are less creditworthy than small non corporate firms, because the former have only the corporation’s assets to back up business debt, while the latter have both the firm’s assets and the owner’s personal assets. Lenders also know that owners of small corporations can easily shift assets between their personal accounts and their corporations’ accounts, so that lenders may not view the corporate / non corporate distinction as meaningful for small firms. In making loans to small corporations, lenders therefore may require that owners personally guarantee the loans. This abolishes the legal distinction between corporations and their owners for purposes of the particular loan and puts the owner’s personal assets at risk to repay the loan.

What where how who why free from the official website 2011.

Related items

• Basic Forms Business of Ownership
• How to Form a LLC