Business is the outcome of the combined effort of one or more than one individual to fulfil a social need and earn some profit. An organization using economic inputs or resources to supply goods or services to consumers in exchange for cash or kinds is called a business entity.
Types of Business
Businesses can be of various types. Here, we will discuss ten different types of businesses. These are as follows:
- Service Business
- Manufacturing Business
- Merchandising Business
- Sole Proprietorship
- Multi-National Corporations (MNCs)
- Limited Liability Company
Each of the types is discussed below:
A business providing intangible products i.e. products which don’t have any physical form is called a service business. These types of businesses offer advice, expertise, professional skills, and other similar services.
Examples of service business include accounting firms, banks, law firms, schools, repair shops, salons and the like.
Manufacturing businesses purchase products to use them as materials in producing a new product. So, the purchased products are transformed into new products. Labor, raw materials and factory overhead are combined in the production process of a manufacturing company. Then the produced goods are sold to the consumers.
A merchandising business purchases product at wholesale prices and sells them at retail prices. Another name of this business is “buy and sell” businesses. They sell the products at a higher price than their purchasing price and thus generate a profit. They sell the products without changing their forms.
Examples of merchandising business include convenience stores, grocery stores, resellers, and distributors.
Sole Proprietorship Business
A business which is formed, owned and operated by a single person is called a sole proprietorship. Forming this business is the easiest and the least costly of all types of business. The owner may use his/her personal assets for supporting business operations. All decisions are made by the owner. The owner enjoys the profit alone and gives fewer taxes than Limited Liability Companies.
The drawback of this business is that the liability of the owner is unlimited. This means if the business fails to pay the creditors, they may acquire the owner’s personal assets to get back their credits. Raising capital is also difficult for a single person. The owner must bear all losses. The business comes to an end with the death or resignation of the owner.
Generally, small businesses adopt this form of business. It is considered as an informal form of business. So, winning contracts or participating in formal functions for formal businesses becomes difficult.
A business owned and operated by two or more members who have contributed their resources into the entity is called partnership. Forming and operating this business are easy if everything takes place according to the agreements. Raising capital is easy from the partners. The profit is divided among the partners.
In the case of a general partnership, all partners bear unlimited liability. While limited partnership does not allow the creditors to go after the limited partners’ personal assets. The partners’ experience and skills ensure the selection of the best decision for implementing partnership practices and policies.
The drawbacks of this business are disagreements among partners regarding sharing profits and the business life is limited.
In the case of a corporation, the business organization and the owner have separate legal personalities. A corporation is a large business owned by investors or shareholders. Raising the initial capital is easy because the par value shares are traded on the stock exchange for the public purchase. The owners bear the limited liability and limitedly involved in the company’s activities. The operations of the corporation are controlled by an elected group from the shareholders i.e. the board of directors.
A corporation’s life is unlimited because any people with resources can become shareholders. Mostly, professionals are employed to run or manage the business. All parties having interest share the risks.
It is difficult to form a corporation because there are certain legal requirements which are to be fulfilled before setting up the business. Decision making follows the majority rule. This business must pay double tax means both individual and corporate tax.
Multi-National Corporations (MNCs)
International or global businesses which produce and sell products in various countries are called multi-national corporations (MNCs). These are large businesses. MNCs’ worldwide operations are centrally controlled. MNCs have huge investments in foreign countries. Goods and services are imported by them. They allow local producers in foreign countries to produce their products. MNCs have manufacturing plants and assembly operations in foreign countries.
Examples of MNCs include Honda, Coca-Cola, Toshiba, Nike, etc.
Some individuals buy some businesses with the condition of giving a percentage of the profit to the parent company in exchange for using the company’s name and the right of selling their products. These are called franchises. Franchises must be strict in following the parent company’s set guidelines. You can expand your business by franchising easily and you won’t incur any debt. Because another party will flourish the expansion of business with their own resources.
Rapid growth is guaranteed by the franchises. So, you don’t have to think about competition. Again, you don’t have to utilize resources on hiring and training of a manager because the franchise already has a business setting and s/he will ensure operational quality and committed management.
Examples of franchises include Pizza Hut, KFC (Kentucky Fried Chicken), Dominos, etc.
Limited Liability Company (LLC)
At least a single person can form a limited liability company through a written agreement. The agreement contains various provisions and details of the company such as management issues, distribution of profits and losses and way of assigning interests to others. An article of association must also be drafted while starting an LLC and the company must have relevant certificates as required by the industry. These companies raise capital by publicly trading the shares and can spread risks through issuing a share.
The owners have limited liability. A limited liability company can be taxed as a corporation, or a partnership, or a sole proprietorship.
A business which is owned by a group of people and is run for their mutual interest or benefit is called a cooperative. The persons belonging to the group are known as members. Cooperatives can be either unincorporated or incorporated.
Housing cooperatives, credit unions, cooperative banking and electricity, and water (utility) cooperatives are examples of some cooperatives.