Business

For other uses, see Business (disambiguation).
"Firm" redirects here. For other uses, see Firm (disambiguation).

A business (also known as an enterprise, a company or a firm) is an organizational entity involved in the provision of goods and services to consumers.[1][2] Businesses as a form of economic activity are prevalent in capitalist economies, where most of them are privately owned and provide goods and services to customers in exchange for other goods, services, or money. Businesses may also be social non-profit enterprises or state-owned public enterprises charged by governments with specific social and economic objectives. A business owned by multiple individuals may form as an incorporated company or jointly organise as a partnership. Countries have different laws that may ascribe different rights to the various business entities.

The word "business" can refer to a particular organization or to an entire market sector (for example: "the music business") or to the sum of all economic activity ("the business sector"). Compound forms such as "agribusiness" represent subsets of the concept's broader meaning, which encompasses all activity by suppliers of goods and services.

Businesses aim for their sales to exceed their expenditures, resulting in a profit or gain or surplus.

Basic forms of ownership

Forms of business ownership vary by jurisdiction, but several common forms exist:

Classifications

Management

Main article: Management

The efficient and effective operation of a business, and study of this subject, is called management. The major branches of management are financial management, marketing management, human resource management, strategic management, production management, operations management, service management, and information technology management.

Owners may administer their businesses themselves, or employ managers to do this for them. Whether they are owners or employees, managers administer three primary components of the business' value: its financial resources, capital or tangible resources, and human resources. These resources are administered in at least five functional areas: legal contracting, manufacturing or service production, marketing, accounting, financing, and human resources.

Restructuring state enterprises

In recent decades, states modeled some of their assets and enterprises after business enterprises. In 2003, for example, the People's Republic of China modeled 80% of its state-owned enterprises on a company-type management system.[8] Many state institutions and enterprises in China and Russia have transformed into joint-stock companies, with part of their shares being listed on public stock markets.

Business process management (BPM) is a holistic management approach focused on aligning all aspects of an organization with the wants and needs of clients. It promotes business effectiveness and efficiency while striving for innovation, flexibility, and integration with technology. BPM attempts to improve processes continuously. It can therefore be described as a "process optimization process." It is argued that BPM enables organizations to be more efficient, effective and capable of change than a functionally focused, traditional hierarchical management approach.

Organization and regulation

Most legal jurisdictions specify the forms of ownership that a business can take, creating a body of commercial law for each type.

The major factors affecting how a business is organized are usually:

Many businesses are operated through a separate entity such as a corporation or a partnership (either formed with or without limited liability). 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 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 general partnership. The terms of a partnership are 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 that person owns it directly or through a formally organized entity.

A few relevant factors to consider in deciding how to operate a business include:

  1. 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.
  2. 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.
  3. In most countries, there are laws which treat small corporations differently from 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.
  4. "Going public" through a process known as an initial public offering (IPO) means that part of the business will be owned by members of the public. This requires organization as a distinct entity, and compliance with a tighter set of laws and procedures. Most public entities are corporations that have sold shares, but increasingly there are also public LLC's that sell units (sometimes also called shares), and other more exotic entities as well, such as, for example, real estate investment trusts in the USA, and unit trusts in the UK. A general partnership cannot "go public."

Commercial law

Main article: Commercial law
Offices in the Los Angeles Downtown Financial District

A very detailed and well-established body of rules that evolved over a very long period of time applies to commercial transactions. The need to regulate trade and commerce and resolve business disputes helped shape the creation of law and courts. The Code of Hammurabi dates back to about 1772 BC for example, and contains provisions that relate, among other matters, to shipping costs and dealings between merchants and brokers.[9] The word "corporation" derives from the Latin corpus, meaning body, and the Maurya Empire in Iron-Age India accorded legal rights to business entities.[10]

In many countries, it is difficult to compile all the laws that can affect a business into a single reference source. Laws can govern treatment of labour and employee relations, worker protection and safety, discrimination on the basis of age, gender, disability, race, and in some jurisdictions, sexual orientation, and the minimum wage, as well as unions, worker compensation, and working hours and leave.

Some specialized businesses may also require licenses, either due to laws governing entry into certain trades, occupations or professions, that require special education, or to raise revenue for local governments. Professions that require special licenses include law, medicine, piloting aircraft, selling liquor, radio broadcasting, selling investment securities, selling used cars, and roofing. Local jurisdictions may also require special licenses and taxes just to operate a business.

Some businesses are subject to ongoing special regulation, for example, public utilities, investment securities, banking, insurance, broadcasting, aviation, and health care providers. Environmental regulations are also very complex and can affect many businesses.

Capital

When businesses need to raise money (called capital), they sometimes offer securities for sale.

Capital may be raised through private means, by an initial public offering or IPO on a stock exchange, or in other ways.

Major stock exchanges include the Shanghai Stock Exchange, Singapore Exchange, Hong Kong Stock Exchange, New York Stock Exchange and NASDAQ (USA), the London Stock Exchange (UK), the Tokyo Stock Exchange (Japan), and Bombay Stock Exchange (India). Most countries with capital markets have at least one.

Businesses that have gone public are subject to regulations concerning their internal governance, such as how executive officers' compensation is determined, and when and how information is disclosed to shareholders and to the public. 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. The regulations are implemented and enforced by the China Securities Regulation Commission (CSRC) in China. In Singapore, the regulation authority is the Monetary Authority of Singapore (MAS), and in Hong Kong, it is the Securities and Futures Commission (SFC).

The proliferation and increasing complexity of the laws governing business have forced increasing specialization in corporate law. It is not unheard of for certain kinds of corporate transactions to require a team of five to ten attorneys due to sprawling regulation. Commercial law spans general corporate law, employment and labor law, health-care law, securities law, mergers and acquisitions, tax law, employee benefit plans, food and drug regulation, intellectual property law on copyrights, patents, trademarks, telecommunications law, and financing.

Other types of capital sourcing includes crowd sourcing on the Internet, venture capital, bank loans, and debentures.

Intellectual property

Businesses often have important "intellectual property" that needs protection from competitors for the company to stay profitable. This could require patents, copyrights, trademarks, or preservation of trade secrets. Most businesses 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 treaties concerning intellectual property, and thus companies registered in these countries are subject to national laws bound by these treaties. In order to protect trade secrets, companies may require employees to sign non-compete clauses which will impose limitations on an employee's interactions with stakeholders, and competitors.

See also

Main article: Outline of business

References

  1. O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 29. ISBN 0-13-063085-3.
  2. Compare: Aaker, David A.; McLoughlin, Damien (2010). "1: Strategic Market Management: An Introduction and Overview". Strategic Market Management: Global Perspectives. Chichester, West Sussex: John Wiley & Sons. p. 3. ISBN 978-0-470-68975-2. Retrieved 2016-11-10. What is a business? What is a business strategy? Having groups of managers provide answers to these basic questions shows that there is little consensus as to what these basic terms mean. [...] A business is generally an organizational unit that has (or should have) a defined strategy and a manager with sales and profit responsibility.
  3. Holloway, S. S.; Parmigiani, A. (2014). "Friends and Profits Dont Mix: The Performance Implications of Repeated Partnerships". Academy of Management Journal. 59 (2): 460. doi:10.5465/amj.2013.0581.
  4. US Small Business Administration
  5. Small Business Chamber of Commerce, Inc.
  6. Definition of a Franchise Business
  7. hWelsh, Dianne H. B.; Desplaces, David E.; Davis, Amy E. (2011). "A Comparison of Retail Franchises, Independent Businesses, and Purchased Existing Independent Business Startups: Lessons from the Kauffman Firm Survey". Journal of Marketing Channels. 18: 3. doi:10.1080/1046669X.2011.533109.
  8. Major Industries. People.com
  9. "Law Code of Hammurabi".
  10. Vikramaditya S. Khanna. "The Economic History of the Corporate Form in Ancient India" (PDF).

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