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. Other forms of business subdivisions 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 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 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, 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 Government
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 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 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 due to the governing of trade and commerce which proved a strong driving force in the creation of law and courts in Western civilization.
As for other laws that regulate or impact businesses, there exist many. Certain laws 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 stem 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 unexpected 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 will be potentially subject to these laws, unless a special exemption is available.
Capital may be raised in many ways either through private means, by an initial public offering or IPO, on a stock exchange. Major stock exchanges include the New York Stock Exchange and Nasdaq, the London Stock Exchange, and the Tokyo Stock Exchange. Most countries with capital markets have at least one major stock exchange.
Business 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, or the SEC. Other Western nations have comparable regulatory bodies.
Today, business laws have become so numerous and complex, that no business lawyer can learn them all, forcing increased specialization among corporate attorneys. It is common 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, 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 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 Ethics
The Global Marketplace
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. 20th century leaders in the global marketplace include the United States Wal-Mart, France’s Carrefour, Holland’s 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 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.
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 remains changed, transforming from a self-contained domestic entity into a world of cross-national trade and investment, increasing instances of interdependent globalization, and transnational business. [4]
Notes
- ↑ 1.0 1.1 1.2 1.3 1.4 Encyclopedia Britannica. Business Organization. Encyclopædia Britannica Online. Cite error: Invalid
<ref>tag; name "Britannica" defined multiple times with different content Cite error: Invalid<ref>tag; name "Britannica" defined multiple times with different content Cite error: Invalid<ref>tag; name "Britannica" defined multiple times with different content Cite error: Invalid<ref>tag; name "Britannica" defined multiple times with different content - ↑ Osterwalder, Alexander. Clarifying Business Models. Association for Information Systems.
- ↑ List, Dennis. What is a Business Model? Audiencedialogue.org
- ↑ Hill, Charles. Global Business Today. McGraw Hill Publishing.
ReferencesISBN links support NWE through referral fees
- 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. South-Western Educational Publishing. ISBN 0324233094
- Encyclopædia Britannica. Business Organization. Encyclopædia Britannica Online. 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.
- Hill, Charles. 2004. Global Business Today. New York, NY: McGraw Hill Publishing. ISBN 0072537892
External Links
- How To Start A Business
- MarketWatch.com Stock Indexes, Business News, Company Information
- International Business Times Global News Coverage
- Business Terminology Small Business Administration. Retrieved 1 June 2007.
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