A business is defined as any entity or person engaged in professional, commercial, or financial activities for profit. Businesses can either be for-profit entities operated to meet a social goal or serve a social purpose, or non-profitable corporations that do not operate in order to meet any social goal. A company may be a sole proprietorship, partnership, or corporation organized for the business’s benefit. The number of employees a business has also determines its level of success and profitability.
A sole proprietorship, also called a sole-proprietorship, is the most simple form of a business organization. It consists of the sole owner, who may not have any employees. Partnerships, too, consist of only one founder and the partners share in the business debts and profits. For a limited liability corporation, which consists of the members’ and shareholders’ interests combined, the company files statements with the state that prove its corporate existence and the right to receive profits and payments.
Other characteristics of a business organization include those relating to its nature of business operations, nature of products or services offered, the purpose of operation, nature of business, and goals or objectives pursued by the enterprise. The objects of business activities may be products, services, information, financial interests, and others. The business organization’s objects may change over time but the basic characteristics remain constant. These characteristics include capital structure, ownership structure, management system, operations, sources of income, liabilities, and control.
The ability of a business to profitably operate has much to do with the capability of the enterprise to deliver value to the shareholders or owners. Value may be defined in various terms by different people. Commonly, value is a comparative measurement that compares the present value of an asset to its countless sale to an investor. A company’s assets are those resources that can readily and reasonably be utilized by the business. An entrepreneur can maximize his profits by converting his assets into cash that can be invested or used to generate income. Examples of such assets are accounts receivable, inventory, short-term loans, and machinery, land, buildings, and plant.
A business can either be a partnership or a sole proprietorship. Under a partnership agreement, there are two parties – the partners. Under a sole proprietorship, only the owner can engage in business activities. There are many differences between a partnership and a sole proprietorship, and a review of these differences is necessary for purposes of comparing business plans between a limited liability company and a corporation.
As between a partnership and a sole proprietorship, cash flow problems between a partnership and an ordinary corporation are much less serious than between a corporation and sole proprietorship. That is because, in a partnership, each partner contributes his or her proportionate part of the firm’s profits, so each partner’s share of profits is equivalent to his or her portion of the firm’s profits. However, in a sole proprietorship, a smaller share of the profits means that the owner’s salary and expenses are reduced. Ownership and control of the firm is thus divided between two people, reducing the profits the firm makes. Because of this reason, it is usually advisable to set up a BIC rather than a partnership or a sole proprietorship when setting up a small business.