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|Management of a business|
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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. Businesses serve as a form of economic activity, and are prevalent in capitalist economies, where most of them are privately owned and provide goods and services allocated through a market to consumers or customers in exchange for other goods, services, or money. Businesses may also be social non-profit enterprises or state-owned public enterprises operated by governments with specific social and economic objectives. A business owned by multiple private 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 financial sector") 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.
Basic forms of ownership
Forms of business ownership vary by jurisdiction, but several common entities exist:
- Sole proprietorship: A sole proprietorship, also known as a sole trader, is owned by one person and operates for their benefit. The owner operates the business alone and may hire employees. A sole proprietor has unlimited liability for all obligations incurred by the business, whether from operating costs or judgements against the business. All assets of the business belong to a sole proprietor, including, for example, computer infrastructure, any inventory, manufacturing equipment, or retail fixtures, as well as any real property owned by the sole proprietor.
- Partnership: A partnership is a business owned by two or more people. In most forms of partnerships, each partner has unlimited liability for the debts incurred by the business. The three most prevalent types of for-profit partnerships are: general partnerships, limited partnerships, and limited liability partnerships.
- Corporation: The owners of a corporation have limited liability and the business has a separate legal personality from its owners. Corporations can be either government-owned or privately owned. They can organize either for profit or as nonprofit organizations. A privately owned, for-profit corporation is owned by its shareholders, who elect a board of directors to direct the corporation and hire its managerial staff. A privately owned, for-profit corporation can be either privately held by a small group of individuals, or publicly held, with publicly traded shares listed on a stock exchange.
- Cooperative: Often referred to as a "co-op", a cooperative is a limited-liability business that can organize as for-profit or not-for-profit. A cooperative differs from a corporation in that it has members, not shareholders, and they share decision-making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy.
- Limited liability companies (LLC), limited liability partnerships, and other specific types of business organization protect their owners or shareholders from business failure by doing business under a separate legal entity with certain legal protections. In contrast, unincorporated businesses or persons working on their own are usually not as protected.
- Franchises: A franchise is a system in which entrepreneurs purchase the rights to open and run a business from a larger corporation. Franchising in the United States is widespread and is a major economic powerhouse. One out of twelve retail businesses in the United States are franchised and 8 million people are employed in a franchised business.
- Agriculture such as the domestication of fish, animals and livestock, as well as lumber, oil and mining businesses that extract natural resources and raw materials, such as wood, petroleum, natural gas, ores, plants or minerals.
- Financial services businesses include banks, brokerage firms, credit unions, credit cards, insurance companies, asset and investment companies such as private equity firms, real estate investment trusts, sovereign wealth funds, pension funds, mutual funds, index funds, and hedge funds, stock exchanges, and other companies that generate profits through investment and management of capital.
- Entertainment and mass media businesses generate profits primarily from the sale of intellectual property – they include entertainment companies such as film studios and production houses, mass media companies such as television networks, online digital media agencies, mobile media outlets, newspapers, book and magazine publishers.
- Industrial manufacturers produce products, either from raw materials or from component parts, then export the finished products at a profit - they include tangible goods such as cars, glass, or aircraft.
- Real estate businesses sell, invest, construct and develop properties – including land, residential homes, and other buildings.
- Retailers, wholesalers, and distributors act as middlemen and get goods produced by manufacturers to the intended consumers; they make their profits by marking up their prices. Most stores and catalog companies are distributors or retailers.
- Service businesses offer intangible goods or services and typically charge for labor or other services provided to government, to consumers, or to other businesses. Interior decorators, consulting firms, telecommunications companies and entertainers are service businesses.
- Transportation businesses such as railways, airlines, shipping companies that deliver goods and individuals to their destinations for a fee.
- Utilities produce public services such as electricity, waste management or sewage treatment, usually under the charge of a government.
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 manage their businesses themselves, or employ managers to do so for them. Whether they are owners or employees, managers administer three primary components of the business' value: financial resources, capital (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. 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.[who?]
Organization and regulation
The major factors affecting how a business is organized are usually:
- The size and scope of the business firm and its structure, management, and ownership, broadly analyzed in the theory of the firm. Generally, a smaller business is more flexible, while larger businesses, or those with wider ownership or more formal structures, will usually tend to be organized as corporations or (less often) partnerships. In addition, a business that 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 in certain ways.
- 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 less or more information public (or report it 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 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. Depending on the business needs, an adviser can decide what kind is proprietorship will be most suitable.
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 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.
- "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 the organization as a distinct entity, to disclose information to the public, and adhering to 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."
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. The word "corporation" derives from the Latin corpus, meaning body, and the Maurya Empire in Iron-Age India accorded legal rights to business entities.
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.
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.
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.
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- 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.
- 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.
- 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.
- US Small Business Administration
- Small Business Chamber of Commerce, Inc.
- Definition of a Franchise Business
- 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.
- Major Industries. People.com
- "Law Code of Hammurabi".
- Vikramaditya S. Khanna. "The Economic History of the Corporate Form in Ancient India" (PDF).
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