Business

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Wall Street, Manhattan

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The word Business leads here, for other meaning see The Business.

In economics, business refers to the social science of managing people to organize and maintain collective productivity toward accomplishing particular creative and productive goals. The etymology of "business" literally refers to the state of being busy, in the context of the individual as well as the community or society.

The term "business" has three usages, depending on the scope —the general usage (above), the singular usage to refer to a particular company or corporation, and the generalized usage to refer to a particular market sector, such as "the record business," "the computer business," or "the business community" - the community of suppliers of goods and services.

The singular "business" is an atomic legally-recognized entity within an economically free society, wherein individuals organize based on expertise and skills to bring about social and technological advancement. With some exceptions, (such as cooperatives, non-profits and (typically) government institutions), businesses are formed under the motivation of earning profit and growing personal wealth of its members. In other words, the 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 — that is, the expense of time, energy, and money.

Contents

Types of businesses

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Commercial Street, Bangalore. India

There are many types of businesses, and, as a result, businesses can be classified in many ways. One of the most common focuses on the primary profit-generating activities of a business, for example:

  • Manufacturers produce products, from raw materials or component parts, which they then sell at a profit. Companies that make physical goods, such as cars or pipes, are considered manufacturers.
  • Service businesses offer intangible goods or services and typically generate a profit by charging for labor or other services provided to other businesses or consumers. Organizations ranging from house painters to consulting firms to restaurants and even to entertainers are types of service businesses.
  • Retailers and Distributors act as middle-men in getting goods produced by manufacturers to the intended consumer, generating a profit as a result of providing sales or distribution services. Most consumer-oriented stores and catalogue companies are distributors or retailers.
  • Agriculture and mining businesses are concerned with the production of raw material, such as plants or minerals.
  • Financial businesses include banks and other companies that generate profit through investment and management of capital.
  • Information businesses generate profits primarily from the resale of intellectual property and include movie studios, publishers and packaged software companies.
  • Utilities produce public services, such as heat, electricity, or sewage treatment, and are usually government chartered.
  • Real estate businesses generate profit from the selling, renting, and development of properties, homes, and buildings.
  • Transportation businesses deliver goods and individuals from location to location, generating a profit on the transportation costs.

There are many other divisions and subdivisions of businesses. The authoritative list of business types for North America (although it is widely used around the world) is generally considered to be the North American Industry Classification System, or NAICS. The equivalent European Union list is the NACE.

Organization

Most businesses must accomplish similar functions regardless of size, legal structure or industry. These functions are often organized into departments. Common departments include (but are not limited to):

Finance and control 
typically responsible for bookkeeping, financial reporting, financial controls and the raising of the capital necessary to run the business. See also Accounting
Human Resources 
typically responsible for hiring, firing, payroll, benefits, etc.
Marketing and sales 
responsible for selling the business' goods or services to the customer and for managing the relationships with the customer
Marketing 
typically responsible for promoting interest in, and generating demand for, the business' products or services, and positioning them within the market
Sales 
finding likely purchasers and obtaining their agreement (known as a contract) to buy the business' products or services
Production/service 
makes the product or delivers the service
Production 
produces the raw materials into the delivered goods, if they require processing
Customer service 
supports customers who need help with the goods or services
Procurement 
responsible for acquiring the goods and services necessary for the business. Sometimes organized as:
Strategic sourcing 
determines the business' needs and plans for acquiring the necessary raw materials and services for the business
Purchasing 
processes the purchase orders and related transactions
Information Technology 
manages the business' computer and data assets
Communications/Public Relations 
responsible for communicating to the outside world
Administration 
provides administrative support to the other departments (such as typing, filing, etc)
Internal Audit 
an independent control function typically accountable to the Board of Directors for reporting on the proper functioning of the other departments

Management is sometimes listed as a "department" but typically refers to the top level of leadership within the business regardless of their functional role.

Business and government

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The Bank of England in Threadneedle Street, London, England.

Most legal jurisdictions specify the forms that a business can take, and a body of commercial law has developed for each type. Some common types include partnerships, corporations (also called limited liability companies), and sole proprietorships.

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Organizing a Vehicle

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

  • The size and scope of the business, and its anticipated management and ownership : A smaller business is more flexible, larger businesses or those with wider ownership or more formal structures, will usually tend to be organized as partnerships or (more commonly) corporations. In addition 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.
  • 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 certain ways.
  • Limited liability : corporations, and limited liability partnerships, protect their owners from business failure, and are treated as separate entities, whereas an unincorporated business or person working on their own is usually not so protected.
  • 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 more or less information puiblic (or reported to relevant authorities), and may be bound to comply with different rules and regulations.

Many businesses are operated through a separate entity such 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 Secretary of State or equivalent and complying with certain other ongoing obligations. 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 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 simple (USA: general) partnership. The terms of a partnership will be 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 he or she 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 than large ones. They may be exempt from certain legal filing requirements or labor laws, have simplified procedures in specialized areas, and have simplifed, advantageous, or slightly different tax treatment.
  4. In order to "go public" (sometimes called IPO) -- which basically means to allow a part of the business to be owned by a wider range of investors or the public in general -- you must organize a separate entity, which is usually required to comply with a tighter set of laws and procedures. Most public entities are corporations that have sold shares, but increasingly there are also public LLCs that sell units (sometimes also called shares), and other more exotic entities as well (for example, REITs in the USA, Unit Trusts in the UK). However, you cannot take a general partnership "public."

Commercial Law and Other Regulation

Most commercial transactions are governed by a very detailed and well-established body of rules that have evolved over a very long period of time, it being the case that governing trade and commerce was a strong driving force in the creation of law and courts in Western civilization.

As for other laws that regulate or impact businesses, in many countries it is all but impossible to chronicle them all in a single reference source. There are laws governing treatment of labor and generally relations with employees, safety and protection issues (OSHA or Health and Safety), anti-discrimination laws (age, gender, disabilities, race, and in some jurisdictions, sexual orientation), minimum wage laws, union laws, workers compensation laws, and annual vacation or working hours time.

In some specialized businesses, there may also be licenses required, either due to special laws that govern entry into certain trades, occupations or professions, which may require special education, or by local governments who just want your money. Professions that require special licenses run the gamut from law and medicine to flying airplanes to selling liquor to radio broadcasting to selling investment securites to selling used cars to roofing. 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, for example, public utilities, investment securities, banking, insurance, broadcasting, aviation, and health care providers. Environmental regulations are also very complex and can impact many kinds of businesses in unexpected ways.

Capital

When business need to raise money (called 'capital'), more laws come into play. A highly complex set of laws and regulations govern the offer and sale of investment securities (the means of raising money) in most Western countries. These regulations can require disclosure of a lot of specific financial and other information about the business and give buyers certain remedies. Because "securities" is a very broad term, most investment transactions will be potentially subject to these laws, unless a special exemption is available.

Capital may be raised through private means, by public offer (IPO) on a stock exchange, or in many other ways. major stock exchanges include the New York Stock Exchange and Nasdaq (USA), the London Stock Exchange (UK), and so on. Most countries with capital markets have at least one.

Business that have gone "public" are subject to extremely detailed and complicated regulation about their internal governance (such as how executive officers' 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 Securites and Exchange Commission (SEC). Other Western nations have comparable regulatory bodies.

As noted at the beginning, it is impossible to enumerate all of the types of laws and regulations that impact on business today. In fact, these laws have become so numerous and complex, that no business lawyer can learn them all, forcing increasing specialization among corporate attorneys. It is not unheard of 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, M&A law (who specialize in acquisitions), tax law, ERISA law (ERISA in ther United States governs employee benefit plans), food and drug regulatory law, intellectual property law (specializing in copyrights, patents, trademarks and such), telecommunications law, and more.

Intellectual property

Businesses often have important "intellectual property" that needs protection from competitors in order to stay profitable. This could require patents or copyrights or preservation of trade secrets. Most business 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 properly, a business needs protection in every jurisdiction in which they are concerned about competitors. many countries are signatories to international treaties concerning intellectual property.

Business and management

The study of the efficient and effective operation of a business is called management. The main branches of management are financial management, marketing management, human resource management, strategic management, production management, service management, information technology management, and business intelligence.

Business and business taxation in different countries

Within these principles, business law and practice varies greatly by country.

United Kingdom

Tax - Business tax is covered by Corporation tax for corporations and some bodies, and income tax for unincorporated businesses. Smaller companies tend to get exemptions from onerous laws and a sliding scale of tax advantages.

Consumer law - The UK has relatively strong laws protecting members of the public as consumers. Within Business to business (B2B) the buyer is assumed to be commercially competent and hence in less need of external protection in their decisions. There is strong law for unfair contract terms, which protect businesses and consumers from inequitable contract terms imposed upon them by others.

United States

Tax - Corporations that have a small number of shareholders and meet other conditions may qualify to be treated by the IRS as so-called "S Corporations," because they are described in subchapter S of the Internal Revenue Code. All other corporations pay taxes under subchapter C, and thus are "C Corporations." S Corporations enjoy so-called "pass-through" tax treatment which avoids the second layer of tax. There are ongoing paperwork requirements, though. LLCs and limited partners in a limited partnership enjoy "pass-through" tax treatment and are not subjected to a second layer of tax.

Consumer law - The Uniform Commercial Code has been adopted in some form or another in all 50 states, with some differences, and helps provide some consistency in the treatment of sales of goods, banking transactions, commercial paper, shipping, trading in investment securities, creation and perfection of security interests (i.e., collateral for loans) and other basic commercial activities. The ubiquitous "AS IS" is the subject of an important part of the Uniform Commercial Code.

See also

This encyclopedia includes over 1600 business and economics articles, so not all appear listed here. This lists some of the main branches of business. For more specific topics, look at the various sublists.

Other uses

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  • Defecation -- "Business", used alone or in a phrase such as "taking care of business" is often a polite euphemism for defecation.
  • Productivity -- "Business" can mean productive behavior in general. See, e.g. "taking care of business".
  • The Business is a punk rock band.
  • Sexual intercourse, especially in reference to someone one feels is worthy to receive their sexual attention, such as "she could get the business"
  • Confidential information. E.g., "it's none of your business".
  • Clientele. E.g. "the lawyer has a large book of business".

External links

This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "Business".

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