What Are the Different Types of Business Entities?
A business is defined as any enterprising entity or corporation engaged in commercial, vocational, or economic activities for profit. Most businesses are for-profit entities but some are service-based organizations that serve the community. Some businesses are sole proprietorships, partnerships, and corporations. There are many types of businesses, the most common of which are: manufacturing, retailing, financial services, advertising, sales, and office/warehouse operations.
The major components of any business include the manufacturing and production processes, the marketing processes, and the distribution processes. Manufacturing refers to the processes involved in creating the products to be sold. Production can be manual (for example, making tools), mechanical (for example, making automobiles), or chemical (for example, making pharmaceuticals). Marketing covers the aspects of obtaining, storing, delivering, and repayment of goods. All three components are included in commercial law.
Distribution involves the physical transportation of goods from their point of origin to their point of sale. This component of business operations is generally described by profit, loss, and gross margin. Profit includes the whole of the value of the assets or the value of the total income resulting from the sale of the goods or the provision of services by the business. Loss includes the difference between the value of the assets and the total income.
Many businesses are classified according to whether they are manufacturing enterprises or service-based. Examples of manufacturing businesses include makers of automobiles, parts and components, and manufactured goods. Service-based enterprises range from air ducts and electrical wiring to computer systems and payroll processing systems. A manufacturer can be either an independent entity or a partnership; the partner being either an employee of a stockholder, or an investor.
Private corporations are not engaged in the business of selling and distributing goods. A private corporation may, however, hire others to perform the function of marketing and advertising its goods and services. In contrast, publicly traded corporations are required to regularly exercise the power of control over the management of their businesses and the distribution of their product.
Income is derived from two sources: wages paid to employees and profits earned by a corporation, partnership, or unincorporated trader. Corporate law also covers the distribution of dividends to shareholders. A profit is the difference between total revenue and the cost or value of the goods or services sold to customers. Profit sharing is one of the features of partnerships and is often viewed as the essence of a partnership. The distribution of profits among the partners is referred to as dividends.
Corporations and other organizations may be both a public and a private entity. A public corporation is one that exists for the benefit of the public. The primary purposes of such businesses are to provide services, produce goods or sell products, and engage in trade. Private businesses are generally formed for the benefit of the owners alone. A for-profit business is one in which profit is primarily the driving force.
Private organizations are normally operated under the supervision of the Internal Revenue Service. A sole proprietorship, for example, will be taxed on the income it makes and not on the goods or services it sells or the services it provides. Partnerships will also be taxed based solely on the partnership’s income and not on the activities performed by the partner(s). Flow-through taxation results when the income passes through a business’s hands before it is distributed to its owners as profit.