Forms of Businesses


Businesses are a part of any society. Not only do they provide a source of employment, but they also meet the needs and wants of various groups of persons. Businesses generally fall under one of three types:

• Manufacturing – These businesses have a production workflow. They purchase products to use as raw materials, which are then processed into finished goods. These goods are then sold to individuals and other businesses. A cheese factory is a good example of a manufacturing businesses as it produces cheese from the raw materials that it purchases.

• Merchandising – These businesses also purchase products though their intentions are different. There is no production process involved in the workflow of merchandising businesses. They instead purchase products in bulk, then resell them in smaller units at a price that results in a profit. A grocery store is a good example of a merchandising business as it simply purchases various goods in bulk that are then resold in smaller quantities.

• Service – These businesses provide intangibles. While they don’t sell physical products, they tend to use them in their operations. An example of a service business is a taxi business. Taxis do not pass on a physical product to the customer, however, purchases of them (cars) are made by the business and used to offer travel to said customers.

These three business types exist in various forms depending on the number of persons who established the business and the process and involved. Below is a brief outline of the five forms of businesses.

Sole Trader

A sole trader (sometimes referred to a sole proprietorship) business is owned, operated, and managed by a single person. They are usually small, and they are also the easiest to get off the ground.

Owners of these type of business have what is known as unlimited liability. This means that debts of the business must be paid using the owner’s personal assets if the assets of the business are insufficient to cover them.

An example of a sole trader business is a cobbler.

Partnership

Partnerships are businesses that are owned by two or more persons that jointly contribute resources. Profits are distributed to partners according to their initial agreement.

Generally, partners have unlimited liability, however, the possibility exists that one or more partners have limited liability.

An example of a partnership is a law firm.

Corporation

These are businesses that are legally recognized as separate from their owners. Owners can be few to many, and the proportion of ownership is denoted by shares of stock.

The owners of the business are usually barely involved in the operations of same. A representative group known as a board of directors, is nominated by the owns to take care of operational needs.

The owners of a corporation have limited liability. An example of a corporation is a commercial bank.

Limited Liability Company (LLC)

An LLC is best described as a hybrid between a corporation and a partnership. As these businesses are not incorporated, they cannot fully be considered corporations.

As the name suggests, owners of an LLC enjoy limited liability. Taxation is not set in stone for these businesses as they can elect to be taxed as any of the three businesses forms discussed above.

Some investment firms are LLCs.

Cooperative

A cooperative business is owned by a group of persons who have a common need. The operation of the business usually directly meets that need. Owners are simply known as members and the businesses can be either unincorporated or incorporated.

A credit union is a good example of a cooperative.

Conclusion

While business are one of three types, there five forms that they also fall under. The applicable form depends on the number of owners, their liability, and the process they were formed under.


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