A business is simply defined as a legally registered entity or association engaged in commercial, corporate, or administrative activities for profit. Companies may be either for-profit or non-for-profit entities that operate with the aim to meet a social cause or further a social agenda. There are a variety of activities which may constitute a business. However, a business cannot exist without any visible physical entity that goes along with it.
Some businesses may be classified as retail stores, manufacturing plants, trading companies, delivery services, sales and distribution, and information technology institutions. In some industries, these functions are subdivided further into components. A manufacturing unit, for example, may be further subdivided into different subcomponents like design and production, packaging and labelling, and administrative and secretarial services. Each component of a business operation has a specific, definite function to perform, and in most cases, the more common functions will be considered first, while the less known ones will be dealt with last.
The other division that business entities can be split into are corporations, sole proprietor businesses, partnership, limited liability company (LLC), partnership, and proprietorship. A corporation is a separate legal entity from its shareholders or owners. It does not have the freedom to conduct businesses in many areas as a sole proprietorship and can only conduct trading and have limited liability for its activities.
On the other hand, a partnership is an association or group of people that share an interest or objective in conducting business. Partnerships can be of various types. For instance, a partnership can be between a group of people who are related by blood, adoption, or marriage, or by common law marriage. Another form of partnership is a simple business relationship where there exists no control or ownership by one partner. This is the most popular kind of partnership. Limited liability partnerships (LLPs) are also examples of partnerships; the partners share in the liability and losses of the business but have limited capacity to create additional profits.
Many businesses use what are called “in-kind” partnerships, which are a mix of the preceding two forms. With an in-kind partnership, there is a business name or brand, which acts as the company’s or its shareholders’ name, but is not itself the company. Instead, one or more outstanding shares of the business name become the liability of the company. In this way, one partner plays the role of the general partner and one or more outstanding shares is owned directly by another partner. If the business becomes successful, the shareholder or owners are entitled to receive dividends on their shares or capital; however, if the business becomes unprofitable, there is no recovery.
For small businesses, sole proprietorship and limited partnerships are probably the best options because they offer minimal risk, great flexibility, and the ability to be able to expand without significant outside financing. Sole proprietor means that the owner can do everything on his or her own while a partner is responsible for the day-to-day operations of the business. On the other hand, with a limited partnership, the owner and partner share in the liability and losses of the partnership. Limited partnerships are ideal for those who want to manage their own business but don’t want to give up their day-to-day freedom.