Difference between revisions of "Business" - New World Encyclopedia

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[[Image:View of Wall Street.jpg|thumb|300px|Wall Street, Manhattan is the location of the [[New York Stock Exchange]] and is often used as a symbol for the world of business.]]
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[[Image:Fuggerkontor.jpg|thumb|200px| A painting of an early business (c. 1500)]]
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A '''business''' is an entity that is formed in order to carry out activities for the purpose of generating revenue. It involves managing people to organize and maintain a collective effort toward accomplishing a particular creative or productive goal. The term may refer to general [[commerce|commercial]], professional, or [[industry|industrial]] activity. The singular usage of the term refers to a particular [[company]] or [[corporation]], wherein individuals organize based on expertise and skills to bring about social or [[technology|technological]] advancement. The generalized usage refers to a particular [[market]] sector, "the computer business" or "the business community," and the particular community of suppliers of various goods and services. With some exceptions, such as [[cooperative]]s, [[non-profit organization]]s, and various [[government]] institutions, businesses are formed to earn [[profit]] and increase the personal wealth of their owners in exchange for their work and expense of time, energy, and money.
  
In [[economics]], '''business''' is the [[social science]] of managing people to organize and maintain collective  productivity toward accomplishing particular creative and productive goals, usually to generate revenue.
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In addition to different types of activity, such as [[manufacturing]], service, [[retail]], and so forth, there are also various forms of business organization, with different legal characteristics. As human society has moved toward increasing [[globalization]] there have been significant impacts on the world of business. One of the significant impacts is the interface with [[ethics]], as doing business in different parts of the world challenges those involved to respond appropriately to more than one set of cultural and legal expectations.  
  
The etymology of "business" refers to the state of being ''busy'', in the context of the individual as well as the community or society. In other words, to be busy is to be doing commercially viable and profitable work.
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==Types of business associations==
<!The term refers to commercial, professional, and industrial activity generally, as in "business continues to evolve as markets change."—>
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[[Image:View of Wall Street.jpg|thumb|300px|[[Wall Street]], [[Manhattan]] is the location of the [[New York Stock Exchange]] and is often used as a symbol for the world of business.]]
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'''Businesses''' are entities formed for the purpose of carrying on commercial enterprise. Such organizations are often established via legal systems that recognize certain [[contract]]s, property rights, and production mergers.<ref name=Britannica> Encyclopedia Britannica, [http://www.britannica.com/eb/article-9106109 Business Organization], ''Encyclopedia Britannica Online.'' Retrieved January 16, 2008.</ref> Generally, there are five main types of business units recognized:
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*'''Sole Proprietorship:''' A sole proprietorship, or individual proprietorship, is a business owned by a single person. The owner may operate alone or may employ others, but retains all the [[profit]] and total and unlimited personal [[liability]] for the [[debt]]s incurred by the business.
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*'''Partnership:''' A partnership is a form of business in which two or more people operate for the common goal of making profit. They may receive different shares of the profits, depending on their investment or contribution. Each partner has total and unlimited personal liability of the debts incurred by the partnership.
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*'''Cooperative Business:''' A cooperative business, or co-op business, uses an integrated business structure with members of the co-op sharing decision-making authority, profits, and liability for debts. Co-ops normally fall into three types and include consumer co-ops, producer co-ops, and worker-owned companies.
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*'''Private Limited Company:''' Private limited companies are small- to medium-sized businesses that are often run by a [[family]] or small group of owners. Owners and managers draw salaries and are only liable for the business up to the amount that they have invested in the company, and are not liable for the debts incurred by the company unless signing a personal guarantee.
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*'''Public Limited Company:''' A public limited company includes any business with limited liability and a wide spread of shareholders. Owners and managers are hired by and receive salaries from the legal incorporated entity that constitutes the business. They are only liable for the business up to the amount they have invested in the company, and are not liable for the debts incurred by the company unless signing a personal guarantee. In the [[United States]], any "limited company" can also be known as a [[corporation]] or [[limited liability company]].
  
The term "business" has at least three usages, depending on the scope &mdash; the general usage (above), the singular usage to refer to a particular [[company]] or [[corporation]], and the generalized usage to refer to a particular [[market sector]], such as "the record business," "the computer business," or "the business community" — the community of suppliers of goods and services.
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==Business classifications==
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Businesses can be classified in many ways. One of the most common distinctions focuses on the primary profit-generating activities of a business. Such classifications can include [[information]] businesses, which generate profits primarily from the resale of [[intellectual property]], and [[utility]] businesses, which offer public services such as [[heat]], [[electricity]], or [[sewage]] treatment. The authoritative list of business types for [[North America]] is contained within the North American Industry Classification System (NAICS).<ref>[http://www.census.gov/epcd/www/naics.html North American Industry Classification System], U.S. Census Bureau. Retrieved January 16, 2008.</ref> The equivalent [[European Union]] list is the NACE. The most common forms of business subdivisions are detailed below:
  
The singular "business" can be a legally-recognized entity within an economically free society, wherein individuals organize based on expertise and skills to bring about social and technological advancement.
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===Manufacturing===
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[[Manufacturer]]s produce [[product (business)|products]], from [[raw material]]s or component parts, which they then sell at a profit. Companies that make physical [[goods]], such as [[automobile|car]]s, [[computer]]s, or [[clothing]], are considered manufacturers.  
  
With some exceptions, (such as [[cooperative]]s, [[non-profit organization]]s and (''typically'') [[government]] institutions), businesses are formed to earn profit and grow the personal wealth of their owners.
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===Service===
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[[Service business]]es offer intangible goods or services and typically generate a profit by charging for their [[labor]]. Income is produced by the rendering of personal service. Service businesses can include [[home repair]], [[education]], [[dentistry]], [[accounting]], and [[plumbing]] businesses.
In other words, the owners and operators of a business have as one of their main objectives ''the receipt or generation of a financial return'' in exchange for their work &mdash; that is, the expense of ''time, energy, and money.''<!-- This article is concerned primarily with the first definition of individual businesses, but also contains links to general business and management topics, in the sense of the second definition.—>
 
  
==Types of Businesses==
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===Retailing===
[[Image:Commercial st.jpg|thumb|250px|left|Commercial Street, [[Bangalore]]. [[India]]]]
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[[Retail]]ers and [[distribution (business)|distributors]] act as middlemen in making goods produced by manufacturers available to the intended consumer, generating a profit as a result of providing sales or distribution services. Most consumer-oriented stores, including [[chain store]]s, [[department store]]s, as well as [[mail-order business]]es are distributors or retailers.
There are five main types of business unit:
 
  
'''Sole Proprietorship:''' a business owned by one person. The owner may operate on their own or may employ others.  The owner of the business has total and unlimited personal liability of the debts incurred by the business.
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===Financial===
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[[Financial]] businesses include [[bank]]s and other companies that generate profit through the investment and management of [[capital]].
  
'''Partnership:''' A partnership is a form of business in which two or more people operate for the common goal of making profit. Each partner has total and unlimited personal liability of the debts incurred by the partnership.
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===Franchising===
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[[Franchising]] is a form of business in which an individual or small business, known as a "franchisee," is given the right to use the identity, and sell the products or services of, another firm known as the "franchisor." The chances of success for the franchisee are high since the business is already established and successful, but a small portion of the profits must go to the franchising company. Many popular "fast-food" restaurants are franchises.
  
'''Cooperative Business:''' (often referred to as a Co-Op business or Co-Ops) use a cooperative business structure: for-profit, limited liability, but with members of the co-op share decision-making authority. Co-Ops normally fall into three types: consumer co-ops, producer co-ops (common in agriculture) and worker-owned companies.  Co-Ops are fundamental to the ideology of [[Economic democracy]].
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==Business management==
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The study of the efficient and effective operation of a business is called [[management]]. The main branches of management can include financial management, [[marketing]] management, [[human resource]] management, strategic management, [[production]] management, [[customer service]] management, [[information technology]] management, and [[business intelligence]].
  
'''Private Limited Company (Ltd):''' a small to medium sized business that is often run by the family or the small group who own it. The owners and managers are only liable for the business up to the amount they have invested in the company, and are not liable for the debts incurred by the company unless they have signed a personal guarantee.
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The simplest form of business to manage is the partnership.<ref name=Britannica/> Under business partnerships, each partner is involved in the management of the firm’s business unless recognized as a [[limited partner]]. The management of [[corporation]]s often allows for company [[shareholder]]s to elect a [[board of directors]] responsible for the management of the firm’s affairs via [[majority rule]]. Under such organizational schemes, general managers are often elected. Other positions may include a business [[president]], [[vice president]], [[treasurer]], or [[secretary]].  
  
'''Public Limited Company:''' a business with limited liability, a wide spread of shareholders and in the UK, a share capital of over £50,000. The owners and managers are only liable for the business up to the amount they have invested in the company, and are not liable for the debts incurred by the company (unless they have signed a personal guarantee, which usually is not the case for a large corporation).
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Public [[investment]] is often a large source of funding for new or expanding business operations. Business growth necessitates increased funding and a larger number of company shareholders. In large American companies, the number of business shareholders may exceed more than 100,000. Though a large amount of company shares may be held by an individual of great [[wealth]], the total amount of large company stock is often so large that even the wealthiest of shareholders will hold no more than a fraction of the total available shares.<ref name=Britannica/> Shareholders always retain the option to sell their shares; if enough shareholders do so, the price of the company stock may [[depreciate]]. Company managers often seek to appease the majority of company stockholders in order to maintain price levels and raise [[capital]] through the issue of new stock. In times of business hardships, a company may be merged into a more successful company in order to avoid [[bankruptcy]]. Businesses can also be bought and sold. Business owners often refer to plans of business disposal as [[exit plan]]s.
  
In the United States and some other countries, a ''limited company'' is known as either a [[corporation]] or a [[limited liability company]].
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Many businesses evolve in response to changing [[market]]s. Firms that serve different markets exhibit great differences in [[technology]], structure, and business practices.<ref name=Britannica/> Corporations are often under competitive pressures to modify, reinvent, or rediscover products that will increase [[consumer demand]] and improve annual revenues. Successful business management often focuses on stable product–market relationships to foster [[economic growth]] and market development. Such relative market control endows corporate executives and officers with considerable discretion over resources and, in turn, with considerable market powers.<ref name=Britannica/>
  
There are many types of businesses, and, as a result, businesses can be classified in many ways. One of the most common focuses on the primary profit-generating activities of a business, for example:
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==Business and law==
* [[Manufacturer]]s 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.
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[[Image:London.bankofengland.arp.jpg|thumb|250px|The [[Bank of England]] on Threadneedle Street, [[London]], [[England]].]]
* 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 to restaurants and even to entertainers are types of service businesses.
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Most legal [[jurisdiction]]s specify the various forms that a business can take, and a body of [[commercial law]] has developed for each type. The major factors affecting how a business is regulated is usually defined by the size and scope of the business, and its anticipated type of management and ownership. A business which 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. Different business structures are also treated differently in [[tax law]] and may face different [[disclosure]] and compliance requirements. According to business structure, some enterprises may also be required to make more or less information public when reporting to relevant authorities.
*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 catalogue companies are distributors or retailers.
 
* [[Agriculture]] and [[mining]] businesses are concerned with the production of raw material, such as plants or minerals.
 
* [[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.
 
* [[Utilities]] produce public services, such as heat, electricity, or sewage treatment, and are usually government chartered.
 
* [[Real estate]] businesses generate profit from the selling, renting, and development of properties, homes, and buildings.
 
* Transportation businesses deliver goods and individuals from location to location, generating a profit on the transportation costs
 
  
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Many businesses are operated through a separate entity such as a corporation, limited partnership, or limited liability company. Most legal jurisdictions allow people to organize such an entity by filing certain [[charter]] documents with the relevant authorities. The relationships and legal rights of shareholders, limited partners, or members, as the case may be, are governed partly by the charter documents and partly by a law of jurisdiction where the entity is organized. Shareholders in a corporation, limited partners in a limited partnership, and members in a limited liability company are often shielded from [[personal liability]] for the debts and obligations of the entity, which is legally treated as a separate body. Unless misconduct occurs, the owner's own possessions are strongly protected by law if the business does not succeed.
  
There are many other divisions and subdivisions of businesses. The authoritative list of business types for North America (although it is widely used around the world) is generally considered to be the [[North American Industry Classification System]], or NAICS. The equivalent European Union list is the [http://www.fifoost.org/database/nace/nace-en_2002AB.php NACE].
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The terms of a partnership are partly governed by a [[partnership agreement]], if signed, and partly by a law of 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.
  
==Starting a Business==
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In deciding how to operate a business, general partners in a partnership, other than a limited liability partnership, and all those who personally own and operate a business without creating a separate legal entity, are personally liable for the debts and obligations of the business. In most countries, there are laws that treat small corporations differently than large ones. They may be exempt from certain legal filing requirements or [[labor law]]s, have simplified procedures in specialized areas, and have slightly different tax treatment.  
'''This whole section on "Starting a Business" was taken directly from this [http://www.doingbusiness.org/ExploreTopics/StartingBusiness website] so it needs reworking or removing.'''
 
  
Doing Business records all procedures that are officially required for an entrepreneur to start up and formally operate an industrial or commercial business. These include obtaining all necessary licenses and permits and completing any required notifications, verifications or inscriptions for the company and employees with relevant authorities.
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In order for a business to "go public," or to allow a part of a business to be owned by a wider range of investors or the public in general, a business owner must organize a separate entity, which is usually required to comply with a more strict set of laws and procedures. Most public entities are corporations that have sold shares, or public limited liability corporations that sell shares.  
  
After a study of laws, regulations and publicly available information on business entry, a detailed list of procedures is developed, along with the time and cost of complying with each procedure under normal circumstances and the paid-in minimum capital requirements. Subsequently, local incorporation lawyers and government officials complete and verify the data. On average 4 law firms participate in each country.
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===Commercial law regulation===
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Most commercial transactions are governed by a very detailed and well-established body of rules that have evolved over time for the governing of [[trade]] and [[commerce]].  
  
Information is also collected on the sequence in which procedures are to be completed and whether procedures may be carried out simultaneously. It is assumed that any required information is readily available and that all agencies involved in the start-up process function efficiently and without corruption. If answers by local experts differ, inquiries continue until the data are reconciled.
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Laws also exist to govern the treatment of [[labor]] and general relations with employees, [[health]], [[safety]], and protection issues, anti-discrimination laws, [[minimum wage]] laws, [[labor union|union]] laws, and [[workers compensation]] laws.
  
To make the data comparable across countries, several assumptions about the business and the procedures are used.
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In some specialized businesses, there may also be licenses that require special [[education]]. Professions that may require special educational licenses range from [[law]] and [[medicine]] to [[aviation]] and the selling of [[liquor]]. Local jurisdictions may also require special licenses and taxes just to operate a business without regard to the type of business involved.
Assumptions about the business
 
  
The business:
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Some businesses are subject to ongoing special regulation. These industries include [[public utilities]], [[investment securities]], [[banking]], [[insurance]], [[broadcasting]], and [[health care]] providers. Environmental regulations are also very complex and can impact many kinds of businesses in numerous specific ways.
  
* Is a limited liability company. If there is more than one type of limited liability company in the country, the limited liability form most popular among domestic firms is chosen. Information on the most popular form is obtained from incorporation lawyers or the statistical office.
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===Capital regulation===
* Operates in the country’s most populous city.
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When businesses need to raise funds, or [[capital]], more laws come into play. A highly complex set of laws and regulations govern the offer and sale of [[investment securities]], the most common means of raising money in most Western businesses. These regulations can require the disclosure of specific financial information about the business and business owners. Most investment transactions are potentially subject to these laws, unless a special exemption is available.  
* Is 100% domestically owned and has 5 owners, none of whom is a legal entity.
 
* Has start-up capital of 10 times income per capita at the end of 2005, paid in cash.
 
* Performs general industrial or commercial activities, such as the production or sale of products or services to the public. It does not perform foreign trade activities and does not handle products subject to a special tax regime, for example, liquor or tobacco. The business is not using heavily polluting production processes.
 
* Leases the commercial plant and offices and is not a proprietor of real estate.
 
* Does not qualify for investment incentives or any special benefits.
 
* Has up to 50 employees 1 month after the commencement of operations, all of them nationals.
 
* Has a turnover of at least 100 times income per capita.
 
* Has a company deed 10 pages long.
 
  
===Procedures===
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Capital may be raised in many ways through private means, by an [[initial public offering]] (IPO), or on a [[stock exchange]]. Most countries with capital markets have at least one major stock exchange. Major stock exchanges include the [[New York Stock Exchange]] and [[NASDAQ]], the [[London Stock Exchange]], and the [[Tokyo Stock Exchange]].
  
A procedure is defined as any interaction of the company founder with external parties (government agencies, lawyers, auditors, notaries). Interactions between company founders or company officers and employees are not counted as procedures. Procedures that must be completed in the same building but in different offices are counted as separate procedures. The founders are assumed to complete all procedures themselves, without middlemen, facilitators, accountants or lawyers, unless the use of such a third party is mandated by law.
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Businesses that have gone public are subject to extremely detailed and complicated regulation about their internal governance, such as how owner compensation is determined, and when and how information is disclosed to the public and their shareholders. In the [[United States]], these regulations are primarily implemented and enforced by the [[United States Securities and Exchange Commission]] (SEC). Other Western nations have comparable regulatory bodies.
  
Both pre- and post-incorporation procedures that are officially required for an entrepreneur to formally operate a business are recorded. Procedures that are not required to start and formally operate a business are ignored. For example, obtaining exclusive rights over the company name is not counted in a country where businesses may use a number as identification.
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Today, business laws have become so numerous and complex, that no business [[lawyer]] can teach them all, forcing increased specialization among corporate attorneys. It is common for teams of 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, healthcare law, securities law, tax law, food and drug regulatory law, intellectual property law, telecommunications law, and more.
 
 
Procedures required for official correspondence or transactions with public agencies are included. For example, if a company seal or stamp is required on official documents, such as tax declarations, obtaining it is counted. Similarly, if a company must open a bank account before registering for sales tax or value added tax, this transaction is included as a procedure. Shortcuts are counted only if they fulfill 3 criteria: they are legal, they are available to the general public, and avoiding them causes substantial delays.
 
 
 
Only procedures required of all businesses are covered. Industry-specific procedures are excluded. For example, procedures to comply with environmental regulations are included only when they apply to all businesses conducting general commercial or industrial activities. Procedures that the company undergoes to connect to electricity, water, gas and waste disposal services are not included.
 
 
 
===Time===
 
 
 
Time is recorded in calendar days. The measure captures the median duration that incorporation lawyers indicate is necessary to complete a procedure. It is assumed that the minimum time required for each procedure is 1 day. Although procedures may take place simultaneously, they cannot start on the same day. A procedure is considered completed once the company has received the final document, such as the company registration certificate or tax number. If a procedure can be accelerated for an additional cost, the fastest procedure is chosen. It is assumed that the entrepreneur does not waste time and commits to completing each remaining procedure without delay. The time that the entrepreneur spends on gathering information is ignored. It is assumed that the entrepreneur is aware of all entry regulations and their sequence from the beginning but has had no prior contact with any of the officials.
 
 
 
===Cost===
 
 
 
Cost is recorded as a percentage of the country’s income per capita. Only official costs are recorded. The company law, the commercial code and specific regulations and fee schedules are used as sources for calculating costs. In the absence of fee schedules, a government officer’s estimate is taken as an official source. In the absence of a government officer’s estimate, estimates of incorporation lawyers are used. If several incorporation lawyers provide different estimates, the median reported value is applied. In all cases the cost excludes bribes.
 
 
 
===Paid-in minimum capital===
 
 
 
The paid-in minimum capital requirement reflects the amount that the entrepreneur needs to deposit in a bank before registration starts and is recorded as a percentage of the country’s income per capita. The amount is typically specified in the commercial code or the company law. Many countries have a minimum capital requirement but allow businesses to pay only a part of it before registration, with the rest to be paid after the first year of operation. In Mozambique in March 2006, for example, the minimum capital requirement for limited liability companies was 1,500,000 meticais, of which half was payable before registration. The paid-in minimum capital recorded for Mozambique is therefore 750,000 meticais, or 10% of income per capita. In the Philippines the minimum capital requirement was 5,000 pesos, but only a quarter needed to be paid before registration. The paid-in minimum capital recorded for the Philippines is therefore 1,250 pesos, or 2% of income per capita.
 
 
 
This methodology was developed in Djankov and others (2002) and is adopted here with minor changes.
 
 
 
==Business departments==
 
Most businesses must accomplish similar functions regardless of size, legal structure or industry.  These functions are often organized into departments.  Common departments include (but are not limited to):
 
; [[Finance]] and control : typically responsible for bookkeeping, financial reporting, financial controls and the raising of the capital necessary to run the business.  See also [[Accounting]]
 
; [[Human Resources]] : typically responsible for hiring, firing, payroll, benefits, etc.
 
; Marketing and sales : responsible for selling the business' goods or services to the customer and for managing the relationships with the customer
 
::; [[Marketing]] : typically responsible for promoting interest in, and generating demand for, the business' products or services, and positioning them within the market
 
::; [[Sales]] : finding likely purchasers and obtaining their agreement (known as a contract) to buy the business' products or services
 
; Production/service : makes the product or delivers the service
 
::; [[Production]] : produces the raw materials into the delivered goods, if they require processing
 
::; [[Customer service]] : supports customers who need help with the goods or services
 
; [[Procurement]] : responsible for acquiring the goods and services necessary for the business.  Sometimes organized as:
 
::; [[Strategic sourcing]] : determines the business' needs and plans for acquiring the necessary raw materials and services for the business
 
::; Purchasing : processes the [[purchase order]]s and related transactions
 
; [[Research and Development]] : tests to create new products and to determine their viability (e.g. [[pilot plant]]s)
 
; [[Information Technology]] : manages the business' computer and data assets
 
; Communications/Public Relations : responsible for communicating to the outside world
 
; Administration : provides administrative support to the other departments (such as typing, filing, etc)
 
; Internal Audit : an independent control function typically accountable to the Board of Directors for reporting on the proper functioning of the other departments
 
 
 
 
 
[[Management]] is sometimes listed as a "department" but typically refers to the top level of leadership within the business regardless of their functional role.
 
 
 
==Business and government==
 
[[Image:London.bankofengland.arp.jpg|thumb|250px|The Bank of England in [[Threadneedle Street]], [[London]], [[England]].]]
 
Most legal jurisdictions specify the forms that a business can take, and a body of [[commercial law]] has developed for each type. Some common types include [[partnership]]s, [[corporation]]s (also called limited liability companies), and [[sole proprietorship]]s.
 
 
 
{{globalize}}
 
===Structuring a Business===
 
 
 
The major factors affecting how a business is organized are usually:
 
* The size and scope of the business, and its anticipated management and ownership : A smaller business is more flexible, larger businesses or those with wider ownership or more formal structures, will usually tend to be organized as partnerships or (more commonly) corporations. In addition a business which 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.
 
* The sector and country : private profit making businesses are different from government owned bodies. In some countries, certain businesses are legally obliged to be organized certain ways.
 
* [[Limited liability]] : corporations, and limited liability partnerships, protect their owners from business failure, and are treated as separate entities, whereas an unincorporated business or person working on their own is 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 more or less information public (or reported 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, limited partnership or limited liability company. 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, as the case may be, 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 simple (USA: general) partnership. The terms of a partnership will be 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 he or she 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.
 
#In order to "go public" (sometimes called Initial public offering|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 and Other Regulation===
 
 
 
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, with that being the case 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 (OSHA or 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 who just want your money. Professions that require special licenses run the gamut 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.
 
 
 
==Capital ==
 
When business need to raise money (called 'capital'), more laws come into play. A highly complex set of laws and regulations govern the offer and sale of investment securities (the means of raising money) in most Western countries. These regulations can require disclosure of a lot of specific financial and other information about the business and give buyers certain remedies. Because "securities" is a very broad term, most investment transactions will be potentially subject to these laws, unless a special exemption is available.
 
 
 
Capital may be raised through private means, by public offer (IPO) on a [[stock exchange]], or in many other ways. Major stock exchanges include the [[New York Stock Exchange]] and [[Nasdaq]] (USA), the [[London Stock Exchange]] (UK), the [[Tokyo Stock Exchange]] (Japan), and so on. Most countries with capital markets have at least one.
 
 
 
Business that have gone "public" are subject to extremely detailed and complicated regulation about their internal governance (such as how executive officers' compensation is determined) and when and how information is disclosed to the public and their shareholders. In the United States, these regulations are primarily implemented and enforced by the United States Securities and Exchange Commission (SEC). Other Western nations have comparable regulatory bodies.
 
 
 
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, healthcare 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.
 
 
 
==Intellectual property==
 
Businesses often have important "intellectual property" that needs protection from competitors in order to stay profitable. This could require patents or copyrights or preservation of trade secrets. Most business have names, logos and similar branding techniques that could benefit from trademarking. Patents and copyrights in the United States are largely governed by federal law, while trade secrets and trademarking are mostly a matter of state law. Because of the nature of intellectual property, a business needs protection in every jurisdiction in which they are concerned about competitors. Many countries are signatories to international treaty|treaties concerning intellectual property.
 
 
 
==Business and management==
 
The study of the efficient and effective operation of a business is called management. The main branches of management are financial management, marketing management, human resource management, strategic management, production management, customer service management, information technology management, and business intelligence.
 
 
 
==Exit plans==
 
Businesses can be bought and sold. Business owners often refer to their plan of disposing of the business as an "exit plan." Common exit plans include IPOs, MBOs and mergers with other businesses.
 
  
 
==Business models==
 
==Business models==
The term '''business model''' describes a broad range of informal and formal models that are used by enterprises to represent various aspects of business, such as operational processes, organizational structures, and financial forecasts. Although the term can be traced to the 1950s, it achieved mainstream usage only in the 1990s. Many informal definitions of the term can be found in popular business literature, such as the following:
+
The term ''business model'' describes a broad range of informal and formal models that are used by enterprises to represent various aspects of business, such as operational processes, organizational structures, and financial forecasts. A business model is a conceptual tool that allows for the expression of that business's logic. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value to generate profitable and sustainable revenue streams.<ref>A. Osterwalder, Y Pigneur, and C. L. Tucci, [http://www.businessmodeldesign.com/publications/Preprint%20Clarifying%20Business%20Models%20Origins,%20Present,%20and%20Future%20of%20the%20Concept.pdf Clarifying Business Models: Origins, Present, and Future of the Concept], ''Communications of the Association for Information Systems'' 15 (May 2005). Retrieved January 16, 2008.</ref>
 
 
{{Cquote2| A business model is a conceptual tool that contains a big set of elements and their relationships and allows expressing the business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams. |[http://www.businessmodeldesign.com/publications/Preprint%20Clarifying%20Business%20Models%20Origins,%20Present,%20and%20Future%20of%20the%20Concept.pdf Osterwalder, Pigneur and Tucci (2005)]|}}
 
 
 
More recently, researchers build definitions based on economic and organizational theories and show that the definitions are econometrically sound.  For example, [http://papers.ssrn.com/sol3/papers.cfm?abstract_id=920667 Malone, et al. (2006)]at [[MIT]] propose an operational definition of business model, based on theories such as those from [[transaction cost economics]]. [http://knowledge.insead.edu/abstract.cfm?ct=11786 Zott and Amit (2002)] from [[INSEAD]] and [[Wharton]] based their definition on boundary-spanning transactions.
 
 
 
==Components of a Business Model==
 
No different conceptualizations of business models exist (Chesbrough and Rosenbloom 2000; Hamel 2000; Linder and Cantrell 2000; Petrovic, Kittl et al.; Weill and Vitale 2001; Gordijn 2002; Afuah and Tucci 2003; Osterwalder 2004; [http://www.leaonline.com/doi/abs/10.1207/s14241250ijmm0601%262_3?journalCode=ijmm) Fetscherin & Knolmayer 2005]). They all have various degrees of resemblance or difference. The model proposed by [http://www.businessmodeldesign.com/publications/The%20Business%20Model%20Ontology%20a%20proposition%20in%20a%20design%20science%20approach.pdf Osterwalder (2004)] synthesises the different conceptualizations into a single reference model based on the similarities of a large range of models. The author's conceptualization describes a business model as consisting of nine related business model building blocks. Thus, a business model describes a company's business:
 
 
 
[[Image:business model components.png|thumb|right|417px]]
 
 
 
'''Infrastructure'''
 
*core capabilities: The capabilities and competencies necessary to execute a company's business model.
 
*partner network: The [[business alliances]] which compliment other aspects of the business model.
 
*value configuration: The rationale which makes a business mutually beneficial for a business and its customers.
 
 
 
'''Offering'''
 
*[[value proposition]]: The products and services a business offers.
 
 
 
'''Customers'''
 
*target customer: The target audience for a business' products and services.
 
*distribution channel: The means by which a company delivers products and services to customers. This includes the company's [[marketing]] and [[distribution (business)|distribution]] strategy.
 
*customer relationship: The links a company establishes between itself and its different customer segments. The process of managing customer relationships is referred to as [[customer relationship management]].
 
 
 
'''Finances'''
 
*cost structure: The monetary consequences of the means employed in the business model. A company's overhead.
 
*revenue: The way a company makes money through a variety of revenue flows. A company's income.
 
 
 
These 9 business model building blocks constitute a [http://business-model-design.blogspot.com/2006/11/business-model-template-designing-your.html business model design template] which allows companies to describe their business model.
 
 
 
===Evolution===
 
A brief history of the development of business models might run as follows.  The oldest and most basic business model is the shop keeper model. This involves setting up a store in a location where potential customers are likely to be and displaying a [[product (business)|product]] or service.
 
 
 
Over the years, business models have become much more sophisticated. The ''bait and hook'' business model (also referred to as the "[[razor and blades business model]]" or the "tied products business model") was introduced in the early [[20th century]]. This involves offering a basic product at a very low cost, often at a loss (the "bait"), then charging compensatory recurring amounts for refills or associated products or services (the "hook"). Examples include: razor (bait) and blades (hook); cell phones (bait) and air time (hook); computer printers (bait) and ink cartridge refills (hook); and cameras (bait) and prints (hook). An interesting variant of this model is a software developer that gives away its word processor reader for free but charges several hundred dollars for its word processor writer.
 
  
In the 1950s new business models came from [[McDonald's]] Restaurants and [[Toyota]]. In the 1960s the innovators were [[Wal-Mart]] and [[Hypermarkets]]. The 1970s saw new business models from [[FedEx]] and [[Toys R Us]]; the 1980s from [[Blockbuster (movie rental store)|Blockbuster]], [[Home Depot]], [[Intel]], and [[Dell Computer]]; the 1990s from [[Southwest Airlines]], [[Netflix]], [[eBay]], [[Amazon.com]], and [[Starbucks]]. Poorly thought out business models were a problem with many [[dot-com company|dot-com]]s.  
+
When designing a new business, the model it uses is likely to be a crucial factor in its success.<ref name=List>Dennis List, [http://www.audiencedialogue.net/busmod.html What is a Business Model?] ''Audience Dialogue.'' Retrieved January 16, 2008.</ref> Business models are designed to identify a potential market, define the generation of a business’s revenue, and to formulate a competitive strategy in order to produce a profit. Such models often seek to answer the following questions: Who pays? For what? To whom? And why? Business models designed for new enterprises are often flexible as young business priorities tend to vary with market changes. A business model should describe exactly how a business plans to generate revenue by transforming inputs into outputs.  
  
Today, the type of business models might depend on how technology is used. For example, entrepreneurs on the internet have also created entirely new models that depend entirely on existing or emergent technology. Using technology, businesses can reach a large number of customers with minimal costs.  
+
The oldest and most basic business model is the [[shopkeeper model]], which involves the set up of a business in a certain location where potential customers are likely to shop. The "bait and hook" business model, introduced in the early twentieth century, involves the offer of a basic product at a very low cost, often at a loss. The business profit is then made by charging compensatory recurring amounts for refills or associated products or services. Examples include [[razor]]s and blades, [[printer]]s and [[ink]], and [[camera]]s and prints. Other frequently used models of business include the [[monopoly|monopolistic business model]], the [[auction|auction business model]], and the [[pyramid scheme]] business model. Today, many types of business models revolve around the use of technology; with the addition of technology, many businesses can reach a large number of customers with minimal costs.
  
==== Example business models over the years====
+
==Business ethics==
* The [[subscription business model]]
+
{{Main|Business ethics}}
* The [[razor and blades business model]] (bait and hook)
+
Business ethics are a form of applied [[ethics]] involving the rules and principles of business. Such ethics encompass the various moral and ethical problems that can arise in a business setting and any special ethical duties or obligations that apply to persons who are engaged in [[commerce]]. Though the majority of business ethics are dealt with and defined by a business ethics panel, code of ethics, or ethics review board, some political legislation can also serve to define such morals. An example can be seen in the higher [[tax]] legislation for higher-emission vehicles.
* The [[pyramid scheme|pyramid scheme business model]]
 
* The [[multi-level marketing|multi-level marketing business model]]
 
* The [[network effects business model]]
 
* The [[monopoly|monopolistic business model]]
 
* The [[cutting out the middleman]] model
 
* The [[auction|auction business model]]
 
* The [[online auction business model]]
 
* The [[bricks and clicks business model]]
 
* The [[loyalty business model]]s
 
* The [[collective business system|Collective business models]]
 
* The [[industrialization of services business model]]
 
* The [[servitization of products business model]]
 
* The [[Low-cost carrier|low-cost carrier business model]]
 
* The [[online]] content business model
 
* The [[freemium business model]]
 
* The [[premium business model]]
 
* The [[rock star business model]]
 
  
=== Do Business Models Matter?===
+
Interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within [[academia]]. Today, most major corporate websites lay a significant emphasis on their commitment to promoting non-economic social values under a variety of headings. In some cases, corporations have even redefined their core values in the light of ethical considerations.  
[http://papers.ssrn.com/sol3/papers.cfm?abstract_id=920667 Malone et al. (2006),] at MIT find that some business models, as defined by them, indeed performed better than others in a dataset consisting of the largest U.S. firms, in the period 1998 through 2002.
 
  
[http://knowledge.insead.edu/abstract.cfm?ct=11786 Zott and Amit (2002)] also link business models to performance, in the context of 190 young, growth-oriented firms in the US and Europe that had gone public between 1996 and 2000. See also their additional research [http://knowledge.insead.edu/abstract.cfm?ct=9603 on value drivers].
+
As part of more comprehensive compliance and ethics programs, many companies have formulated internal policies pertaining to the ethical conduct of employees. These policies can be simple [[exhortation]]s in broad, highly generalized language of a corporate ethics statement, or they can be more detailed policies, containing specific behavioral requirements known as corporate ethics codes. They are generally meant to identify the company's expectations of workers and to offer guidance on handling some of the more common ethical problems that might arise in the course of doing business. The aims of having such a policy include greater ethical awareness, consistency in application, and the avoidance of ethical disasters. An increasing number of companies also require employees to attend seminars regarding [[business conduct]], which often include discussion of the company's policies, specific case studies, and legal requirements. Some companies even require their employees to sign agreements stating that they will abide by the company's rules of conduct.
  
=== Related Concepts===
+
==The global marketplace==
The process of business model design is part of [[business strategy]]. The implementation of a company's business model into organizational structures (e.g. organigrams, workflows, human resources) and systems (e.g. information technology architecture, production lines) is part of a company's [[business operations]]. It is important to understand that [[business modeling]] commonly refers to [[business process design]] at the operational level, whereas business models and [[business model design]] refer to defining the business logic of a company at the strategic level.
+
[[Image:Commercial st.jpg|thumb|350px|right|Commercial Street, [[Bangalore]], [[India]]]]
 +
In order to find international success, contemporary businesses often need to adapt to the demands of the [[global marketplace]]. Some countries, such as the [[United States]], place a significant emphasis on business innovation, while others, such as [[Japan]], focus more on domestic production and manufacturing. Twentieth-century leaders in the global marketplace include the United States' [[Wal-Mart]], [[France]]’s [[Carrefour]], the [[Netherlands]]' [[Ahold]], and the [[United Kingdom]]’s [[Tesco]]. When adapting to a worldwide market, many international businesses aim to remove trade obstacles and economic distortions in order to maximize a [[comparative advantage]] in a certain goods production.  
  
==Global Marketplace==
+
International businesses often undergo three major transitions when [[globalization|globalizing]]. The first transition is often from a traditional [[specialized production]] to a [[factor-driven production]]. The second stage moves the business from a factor-driven production to an [[investment-related production]]. The third and final business transition moves the expanding business to an [[innovation-driven production]]. Each of these transitions requires a different set of policies and strategies from both the public and the [[private sector]] in order to ensure business growth and development internationally.  
As time progresses more and more businesses need to adapt to the demands of the global marketplace.  Some countries have put an emphasis on innovation (i.e. America), while others may focus more on production and manufacturing (i.e Japan).  Some points to consider when adapting a business to the worldwide market:
 
 
Removing trade obstacles and economic distortions (getting prices right) to enable countries to benefit from their comparative advantage is a prerequisite for competing in international markets on the basis of competitive primary production factors. At this stage, the role of Government and TSIs is primarily to eliminate biases against outward-looking development.
 
  
Specialization matters: countries need to focus on sectors with high value-added growth potential. Hence, creating competitive advantage in growth sectors should be one of the overriding concerns not only of companies, but also of governments. It requires a strong public-private partnership.
+
As barriers to international investment diminish, global businesses have entered various [[foreign market]]s that prove more lucrative and expansive than domestic markets. In order to increase sales, many international enterprises invade untapped markets in expanding and developing countries worldwide. Such expansion often allows various enterprises to reap significant [[economies of scale]] due to increased global power. As more businesses globalize and maximize operations, the concept of a traditional business has changed, transforming from a self-contained domestic entity into a world of cross-national trade and investment, increasing instances of interdependent globalization, and [[transnational corporation]]s.<ref>Charles Hill, ''Global Business Today'' (New York: McGraw-Hill, 2004 ISBN 0072537892).</ref>
  
There are three major transitions: (i) from a traditional specialization to factor-driven competitive advantage, (ii) from factor-driven competitive advantage to investment-related competitive advantage, and (iii) from investment-related competitive advantage to innovation-driven competitive advantage.
+
==Notes==
 +
<references/>
  
Each of these transitions requires a different set of policies and strategies from the public and the private sector. What may have been a strength at one stage may turn into a liability at the next.
+
==References==
Winner takes it all: in the new international division of labour, the only sustainable competitive position is leadership. The challenge is to segment markets accordingly.
+
*Afuah, Allan. 2003. ''Business Models: A Strategic Management Approach.'' McGraw-Hill. ISBN 0072883642
 +
*Copeland, Michael J., and Camille P Schuster. 2007. ''Global Business Practices: Adapting for Success.'' Thomson. ISBN 0324233094
 +
*Hill, Charles. 2004. ''Global Business Today.'' New York: McGraw-Hill. ISBN 0072537892
 +
*List, Dennis. [http://www.audiencedialogue.net/busmod.html What is a Business Model?] ''Audience Dialogue.'' Retrieved January 16, 2008.
 +
*Osterwalder, A., Y. Pigneur, and C. L. Tucci. 2005. [http://www.businessmodeldesign.com/publications/Preprint%20Clarifying%20Business%20Models%20Origins,%20Present,%20and%20Future%20of%20the%20Concept.pdf Clarifying Business Models: Origins, Present, and Future of the Concept]. ''Communications of the Association for Information Systems'' 15 (May). Retrieved January 16, 2008.
  
Also with the advancement of technology and the World Wide Web more companies are preparing to become more globalized.
+
==External links==
 +
All links retrieved March 21, 2013.
 +
*[http://www.sba.gov/smallbusinessplanner/plan/getready/serv_sbplanner_gready_glossory.html Business Terminology] Small Business Administration
 +
*[http://www.myownbusiness.org/course_list.html How to Start a Business]
 +
*[http://www.ibtimes.com/ International Business Times] Global News Coverage
  
==External Links==
 
*[http://www.myownbusiness.org/course_list.html How To Start A Business] 14 session course on starting a business.
 
*[http://www.doingbusiness.org/ExploreTopics/StartingBusiness Starting a Business] Learn about details on how to start a business in 155 countries.
 
*[http://www.otherrealm.org/business/ A list of resources helpful for starting your own business]
 
*[http://finance.yahoo.com/ Yahoo! Finance] Aggregates some good financial articles and company information
 
*[http://www.marketwatch.com/ MarketWatch.com] Contains stock indices, business news, company information
 
*[http://www.ibtimes.com/ International Business Times] A business newspaper with global news coverage.
 
*[http://www.experienced-people.co.uk/ Buying and selling businesses]
 
*[http://www.intracen.org/execforum/ef2002/ediscussions/2002_1/1highlightssession1.htm/ Executive Forum]
 
*[http://www.BusinessModelingForum.com Business Modeling Forum] Business modeling community web that includes information about business process modeling specifications, tools, and publications.
 
* [http://BusinessAssyst.com  Business Assyst is a Customer Loyalty & CRM consultancy advising on cost benefit analysis, business processes, scheme design, platform selection, implementation and project management.]
 
  
 
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{{Credits|Business|71365557|Business_model|117734262|}}

Revision as of 21:14, 21 March 2013


A painting of an early business (c. 1500)

A business is an entity that is formed in order to carry out activities for the purpose of generating revenue. It involves managing people to organize and maintain a collective effort toward accomplishing a particular creative or productive goal. The term may refer to general commercial, professional, or industrial activity. The singular usage of the term refers to a particular company or corporation, wherein individuals organize based on expertise and skills to bring about social or technological advancement. The generalized usage refers to a particular market sector, "the computer business" or "the business community," and the particular community of suppliers of various goods and services. With some exceptions, such as cooperatives, non-profit organizations, and various government institutions, businesses are formed to earn profit and increase the personal wealth of their owners in exchange for their work and expense of time, energy, and money.

In addition to different types of activity, such as manufacturing, service, retail, and so forth, there are also various forms of business organization, with different legal characteristics. As human society has moved toward increasing globalization there have been significant impacts on the world of business. One of the significant impacts is the interface with ethics, as doing business in different parts of the world challenges those involved to respond appropriately to more than one set of cultural and legal expectations.

Types of business associations

File:View of Wall Street.jpg
Wall Street, Manhattan is the location of the New York Stock Exchange and is often used as a symbol for the world of business.

Businesses are entities formed for the purpose of carrying on commercial enterprise. Such organizations are often established via legal systems that recognize certain contracts, property rights, and production mergers.[1] Generally, there are five main types of business units recognized:

  • Sole Proprietorship: A sole proprietorship, or individual proprietorship, is a business owned by a single person. The owner may operate alone or may employ others, but retains all the profit and total and unlimited personal liability for the debts incurred by the business.
  • Partnership: A partnership is a form of business in which two or more people operate for the common goal of making profit. They may receive different shares of the profits, depending on their investment or contribution. Each partner has total and unlimited personal liability of the debts incurred by the partnership.
  • Cooperative Business: A cooperative business, or co-op business, uses an integrated business structure with members of the co-op sharing decision-making authority, profits, and liability for debts. Co-ops normally fall into three types and include consumer co-ops, producer co-ops, and worker-owned companies.
  • Private Limited Company: Private limited companies are small- to medium-sized businesses that are often run by a family or small group of owners. Owners and managers draw salaries and are only liable for the business up to the amount that they have invested in the company, and are not liable for the debts incurred by the company unless signing a personal guarantee.
  • Public Limited Company: A public limited company includes any business with limited liability and a wide spread of shareholders. Owners and managers are hired by and receive salaries from the legal incorporated entity that constitutes the business. They are only liable for the business up to the amount they have invested in the company, and are not liable for the debts incurred by the company unless signing a personal guarantee. In the United States, any "limited company" can also be known as a corporation or limited liability company.

Business classifications

Businesses can be classified in many ways. One of the most common distinctions focuses on the primary profit-generating activities of a business. Such classifications can include information businesses, which generate profits primarily from the resale of intellectual property, and utility businesses, which offer public services such as heat, electricity, or sewage treatment. The authoritative list of business types for North America is contained within the North American Industry Classification System (NAICS).[2] The equivalent European Union list is the NACE. The most common forms of business subdivisions are detailed below:

Manufacturing

Manufacturers produce products, from raw materials or component parts, which they then sell at a profit. Companies that make physical goods, such as cars, computers, or clothing, are considered manufacturers.

Service

Service businesses offer intangible goods or services and typically generate a profit by charging for their labor. Income is produced by the rendering of personal service. Service businesses can include home repair, education, dentistry, accounting, and plumbing businesses.

Retailing

Retailers and distributors act as middlemen in making goods produced by manufacturers available to the intended consumer, generating a profit as a result of providing sales or distribution services. Most consumer-oriented stores, including chain stores, department stores, as well as mail-order businesses are distributors or retailers.

Financial

Financial businesses include banks and other companies that generate profit through the investment and management of capital.

Franchising

Franchising is a form of business in which an individual or small business, known as a "franchisee," is given the right to use the identity, and sell the products or services of, another firm known as the "franchisor." The chances of success for the franchisee are high since the business is already established and successful, but a small portion of the profits must go to the franchising company. Many popular "fast-food" restaurants are franchises.

Business management

The study of the efficient and effective operation of a business is called management. The main branches of management can include financial management, marketing management, human resource management, strategic management, production management, customer service management, information technology management, and business intelligence.

The simplest form of business to manage is the partnership.[1] Under business partnerships, each partner is involved in the management of the firm’s business unless recognized as a limited partner. The management of corporations often allows for company shareholders to elect a board of directors responsible for the management of the firm’s affairs via majority rule. Under such organizational schemes, general managers are often elected. Other positions may include a business president, vice president, treasurer, or secretary.

Public investment is often a large source of funding for new or expanding business operations. Business growth necessitates increased funding and a larger number of company shareholders. In large American companies, the number of business shareholders may exceed more than 100,000. Though a large amount of company shares may be held by an individual of great wealth, the total amount of large company stock is often so large that even the wealthiest of shareholders will hold no more than a fraction of the total available shares.[1] Shareholders always retain the option to sell their shares; if enough shareholders do so, the price of the company stock may depreciate. Company managers often seek to appease the majority of company stockholders in order to maintain price levels and raise capital through the issue of new stock. In times of business hardships, a company may be merged into a more successful company in order to avoid bankruptcy. Businesses can also be bought and sold. Business owners often refer to plans of business disposal as exit plans.

Many businesses evolve in response to changing markets. Firms that serve different markets exhibit great differences in technology, structure, and business practices.[1] Corporations are often under competitive pressures to modify, reinvent, or rediscover products that will increase consumer demand and improve annual revenues. Successful business management often focuses on stable product–market relationships to foster economic growth and market development. Such relative market control endows corporate executives and officers with considerable discretion over resources and, in turn, with considerable market powers.[1]

Business and law

The Bank of England on Threadneedle Street, London, England.

Most legal jurisdictions specify the various forms that a business can take, and a body of commercial law has developed for each type. The major factors affecting how a business is regulated is usually defined by the size and scope of the business, and its anticipated type of management and ownership. A business which 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. Different business structures are also treated differently in tax law and may face different disclosure and compliance requirements. According to business structure, some enterprises may also be required to make more or less information public when reporting to relevant authorities.

Many businesses are operated through a separate entity such as a corporation, limited partnership, or limited liability company. Most legal jurisdictions allow people to organize such an entity by filing certain charter documents with the relevant authorities. The relationships and legal rights of shareholders, limited partners, or members, as the case may be, are governed partly by the charter documents and partly by a law of jurisdiction where the entity is organized. Shareholders in a corporation, limited partners in a limited partnership, and members in a limited liability company are often shielded from personal liability for the debts and obligations of the entity, which is legally treated as a separate body. Unless misconduct occurs, the owner's own possessions are strongly protected by law if the business does not succeed.

The terms of a partnership are partly governed by a partnership agreement, if signed, and partly by a law of 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.

In deciding how to operate a business, general partners in a partnership, other than a limited liability partnership, and all those who personally own and operate a business without creating a separate legal entity, are personally liable for the debts and obligations of the business. In most countries, there are laws that 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 slightly different tax treatment.

In order for a business to "go public," or to allow a part of a business to be owned by a wider range of investors or the public in general, a business owner must organize a separate entity, which is usually required to comply with a more strict set of laws and procedures. Most public entities are corporations that have sold shares, or public limited liability corporations that sell shares.

Commercial law regulation

Most commercial transactions are governed by a very detailed and well-established body of rules that have evolved over time for the governing of trade and commerce.

Laws also exist to govern the treatment of labor and general relations with employees, health, safety, and protection issues, anti-discrimination laws, minimum wage laws, union laws, and workers compensation laws.

In some specialized businesses, there may also be licenses that require special education. Professions that may require special educational licenses range from law and medicine to aviation and the selling of liquor. 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 public utilities, investment securities, banking, insurance, broadcasting, and health care providers. Environmental regulations are also very complex and can impact many kinds of businesses in numerous specific ways.

Capital regulation

When businesses need to raise funds, or capital, more laws come into play. A highly complex set of laws and regulations govern the offer and sale of investment securities, the most common means of raising money in most Western businesses. These regulations can require the disclosure of specific financial information about the business and business owners. Most investment transactions are potentially subject to these laws, unless a special exemption is available.

Capital may be raised in many ways through private means, by an initial public offering (IPO), or on a stock exchange. Most countries with capital markets have at least one major stock exchange. Major stock exchanges include the New York Stock Exchange and NASDAQ, the London Stock Exchange, and the Tokyo Stock Exchange.

Businesses that have gone public are subject to extremely detailed and complicated regulation about their internal governance, such as how owner compensation is determined, and when and how information is disclosed to the public and their shareholders. In the United States, these regulations are primarily implemented and enforced by the United States Securities and Exchange Commission (SEC). Other Western nations have comparable regulatory bodies.

Today, business laws have become so numerous and complex, that no business lawyer can teach them all, forcing increased specialization among corporate attorneys. It is common for teams of 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, healthcare law, securities law, tax law, food and drug regulatory law, intellectual property law, telecommunications law, and more.

Business models

The term business model describes a broad range of informal and formal models that are used by enterprises to represent various aspects of business, such as operational processes, organizational structures, and financial forecasts. A business model is a conceptual tool that allows for the expression of that business's logic. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value to generate profitable and sustainable revenue streams.[3]

When designing a new business, the model it uses is likely to be a crucial factor in its success.[4] Business models are designed to identify a potential market, define the generation of a business’s revenue, and to formulate a competitive strategy in order to produce a profit. Such models often seek to answer the following questions: Who pays? For what? To whom? And why? Business models designed for new enterprises are often flexible as young business priorities tend to vary with market changes. A business model should describe exactly how a business plans to generate revenue by transforming inputs into outputs.

The oldest and most basic business model is the shopkeeper model, which involves the set up of a business in a certain location where potential customers are likely to shop. The "bait and hook" business model, introduced in the early twentieth century, involves the offer of a basic product at a very low cost, often at a loss. The business profit is then made by charging compensatory recurring amounts for refills or associated products or services. Examples include razors and blades, printers and ink, and cameras and prints. Other frequently used models of business include the monopolistic business model, the auction business model, and the pyramid scheme business model. Today, many types of business models revolve around the use of technology; with the addition of technology, many businesses can reach a large number of customers with minimal costs.

Business ethics

Main article: Business ethics

Business ethics are a form of applied ethics involving the rules and principles of business. Such ethics encompass the various moral and ethical problems that can arise in a business setting and any special ethical duties or obligations that apply to persons who are engaged in commerce. Though the majority of business ethics are dealt with and defined by a business ethics panel, code of ethics, or ethics review board, some political legislation can also serve to define such morals. An example can be seen in the higher tax legislation for higher-emission vehicles.

Interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia. Today, most major corporate websites lay a significant emphasis on their commitment to promoting non-economic social values under a variety of headings. In some cases, corporations have even redefined their core values in the light of ethical considerations.

As part of more comprehensive compliance and ethics programs, many companies have formulated internal policies pertaining to the ethical conduct of employees. These policies can be simple exhortations in broad, highly generalized language of a corporate ethics statement, or they can be more detailed policies, containing specific behavioral requirements known as corporate ethics codes. They are generally meant to identify the company's expectations of workers and to offer guidance on handling some of the more common ethical problems that might arise in the course of doing business. The aims of having such a policy include greater ethical awareness, consistency in application, and the avoidance of ethical disasters. An increasing number of companies also require employees to attend seminars regarding business conduct, which often include discussion of the company's policies, specific case studies, and legal requirements. Some companies even require their employees to sign agreements stating that they will abide by the company's rules of conduct.

The global marketplace

Commercial Street, Bangalore, India

In order to find international success, contemporary businesses often need to adapt to the demands of the global marketplace. Some countries, such as the United States, place a significant emphasis on business innovation, while others, such as Japan, focus more on domestic production and manufacturing. Twentieth-century leaders in the global marketplace include the United States' Wal-Mart, France’s Carrefour, the Netherlands' Ahold, and the United Kingdom’s Tesco. When adapting to a worldwide market, many international businesses aim to remove trade obstacles and economic distortions in order to maximize a comparative advantage in a certain goods production.

International businesses often undergo three major transitions when globalizing. The first transition is often from a traditional specialized production to a factor-driven production. The second stage moves the business from a factor-driven production to an investment-related production. The third and final business transition moves the expanding business to an innovation-driven production. Each of these transitions requires a different set of policies and strategies from both the public and the private sector in order to ensure business growth and development internationally.

As barriers to international investment diminish, global businesses have entered various foreign markets that prove more lucrative and expansive than domestic markets. In order to increase sales, many international enterprises invade untapped markets in expanding and developing countries worldwide. Such expansion often allows various enterprises to reap significant economies of scale due to increased global power. As more businesses globalize and maximize operations, the concept of a traditional business has changed, transforming from a self-contained domestic entity into a world of cross-national trade and investment, increasing instances of interdependent globalization, and transnational corporations.[5]

Notes

  1. 1.0 1.1 1.2 1.3 1.4 Encyclopedia Britannica, Business Organization, Encyclopedia Britannica Online. Retrieved January 16, 2008.
  2. North American Industry Classification System, U.S. Census Bureau. Retrieved January 16, 2008.
  3. A. Osterwalder, Y Pigneur, and C. L. Tucci, Clarifying Business Models: Origins, Present, and Future of the Concept, Communications of the Association for Information Systems 15 (May 2005). Retrieved January 16, 2008.
  4. Dennis List, What is a Business Model? Audience Dialogue. Retrieved January 16, 2008.
  5. Charles Hill, Global Business Today (New York: McGraw-Hill, 2004 ISBN 0072537892).

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External links

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