The term business refers to an organization or enterprising entity engaged in commercial, industrial, or professional activities. The term business also refers to the efforts and activities undertaken by individuals to produce and sell goods and services for profit. The purpose of a business is to organize some sort of economic production of goods or services. Busineses can be for-profit entities or non-profit organizations fulfilling a charitable mission or furthering a social cause. Businesses range in scale and scope from sole proprietors hips to large, international corporations.
Understanding a Business
The term business often refers to an entity that operates for commercial, industrial, or professional reasons. Business plans are essential when you want to borrow capital to begin operations. The concept begins with an idea and a name, and extensive market research may be required to determine how feasible it is to turn the idea into a business. Businesses often require business plans before operations begin. A business plan is a formal document that outlines the company's goals and objectives and lists the strategies and plans to achieve these goals and objectives. Determining the legal structure of the business is an important factor to consider, since business owners may need to secure permits and licenses and follow registration requirements to begin legal operations. Corporations are considered to be juridical persons in many countries, meaning that the business can own property, take on debt, and be sued in court. Most businesses operate to generate a profit, commonly called for-profit. However, some businesses that have a goal to advance a certain cause without profit are referred to as not-for-profit or nonprofit. These entities may operate as charities, arts, culture, educational, and recreational enterprises, political and advocacy groups, or social services organizations.
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Business activities often include the sale and purchase of goods and services. Business activity can take place anywhere, whether that's in a physical storefront, online, or on the roadside. Anyone who conducts business activity with financial earnings must report this income to the Internal Revenue Service (IRS).5
A company often defines its business by the industry in which it operates. For example, the real estate business, advertising business, or mattress production business are examples of industries. Business is a term often used to indicate transactions regarding an underlying product or service. For example, ExxonMobil conducts its business by providing oil.
Types of Businesses
There are many ways to organize a business, and there are various legal and tax structures that correspond with each. Businesses are commonly classified and generally structured as:
- Corporation: A corporation is a business in which a group of people acts as a single entity. Owners are commonly referred to as shareholders who exchange consideration for the corporation's common stock. Incorporating a business releases owners of the financial liability of business obligations. A corporation comes with unfavorable taxation rules for the owners of the business.2
- Partnership: A partnership is a business relationship between two or more people who together conduct business. Each partner contributes resources and money to the business and shares in the profits and losses of the business. The shared profits and losses are recorded on each partner's tax return.7
- Limited Liability Company (LLC): This is a relatively new business structure and was first available in Wyoming in 1977 and in other states in the 1990s. A limited liability company combines the pass-through taxation benefits of a partnership with the limited liability benefits of a corporation.8
Wyoming LLC. "The Complete History of the LLC."
- Sole Proprietorship: As the name suggests, a sole proprietorship is owned and operated by a single person. There is no legal separation between the business and the owner, which means the tax and legal liabilities of the business are the responsibility of the owner.6
Internal Revenue Service. "Sole Proprietorships."
- Sole Proprietorship: As the name suggests, a sole proprietorship is owned and operated by a single person. There is no legal separation between the business and the owner, which means the tax and legal liabilities of the business are the responsibility of the owner.6
U.S. Small Business Administration. "10 Steps To Start Your Business."
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