Business
Business is the social science of managing people to organize and maintain a collective effort toward accomplishing a particular creative or productive goal, usually to generate revenue. The term refers to general commercial, professional, or industrial activity and has at least three usages, depending on the scope. The general usage can refer to any activities of a particular collective unit. The singular usage 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, such as "the record business," "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. 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 and expense of time, energy, and money.
Types of Business Associations
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 on their own or may employ others, but retains total and unlimited personal liability of 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. 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. 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 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 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.
Businesses can be classified in many ways. One of the most common distinction focuses on the primary profit-generating activities of a business. Such classifications can include manufacturers, which produce products from raw materials or component parts, Service Businesses which offer intangible goods or services and typically generate a profit by charging for labor, business retailers and distributors which act as middle-men in the supply of goods and services, and financial businesses which include banks and other companies that generate profit through investment and management of capital. Other variants 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. Many other divisions and subdivisions of businesses exist. The authoritative list of business types for North America is contained within the North American Industry Classification System, or NAICS. The equivalent European Union list is the NACE.
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 a business' 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. [2]
When designing a new business, the model it uses is likely to be a crucial factor in its success. [3] Business models are designed to identify a potential market, define the generation of a business’ 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 shop keeper model which involves the set up of a business in a certain location where potential customers are likely to shop. Over the years, business models have acquired a degree of sophistication. The bait and hook business model, introduced in the early 20th 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 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. [4] 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 figures 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, 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. [5] 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.
Businesses often evolve in response to changing markets. Firms that serve different markets exhibit great differences in technology, structure and business practices. [6] 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. [7]
Starting a Business
This whole section on "Starting a Business" was taken directly from this 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.
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.
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.
Procedures
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.
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.
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 and Government
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 partnerships, corporations (also called limited liability companies), and sole proprietorships.
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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.
The International Marketplace
In order to be successful, 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. When adapting to a worldwide market, many international businesses aim to remove trade obstacles and economic distortions; this may allow for certain businesses to benefit from a comparative advantage, or the production of a good at its lowest cost. This strategy is often a prerequisite for efficient business when competing in international markets. Other international businesses often focus on sectors with high value-added growth potential. Here, creating a competitive advantage in growth sectors is not only one of the overriding concerns of companies, but also of governments.
International businesses often undergo three major transitions; the first from a specialized production to a factor-driven production, the second from a factor-driven production to an investment-related production, and the third from an investment-related production 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.
ReferencesISBN links support NWE through referral fees
- Encyclopædia Britannica. Business Organization. Encyclopædia Britannica Online. Retrieved 31 May 2007.
- Romer, Christina. Business Cycles. The Concise Encyclopedia of Economics. Retrieved 31 May 2007.
- List, Dennis. What is a Business Model? Audiencedialogue.org Retrieved 25 May 2007.
- Osterwalder, Alexander. Clarifying Business Models. Association for Information Systems. Volume 15. May 2005.
External Links
- How To Start A Business
- MarketWatch.com Stock Indexes, Business News, Company Information
- International Business Times Global News Coverage
- Business Organization Encyclopedia Britannica.
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