What is a Business?
A business is defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities. Businesses can be for-profit entities or they can be non-profit organizations that operate to fulfill a charitable mission or further a social cause.
The term “business” also refers to the organized efforts and activities of individuals to produce and sell goods and services for profit. Businesses range in scale from a sole proprietorship to an international corporation. Several lines of theory are engaged with understanding business administration including organizational behavior, organization theory, and strategic management.
Business is the activity of making one’s living or making money by producing or buying and selling products (such as goods and services). Simply put, it is “any activity or enterprise entered into for profit.”
Having a business name does not separate the business entity from the owner, which means that the owner of the business is responsible and liable for debts incurred by the business. If the business acquires debts, the creditors can go after the owner’s personal possessions. A business structure does not allow for corporate tax rates. The proprietor is personally taxed on all income from the business.
The term is also often used colloquially (but not by lawyers or by public officials) to refer to a company. A company, on the other hand, is a separate legal entity and provides for limited liability, as well as corporate tax rates. A company structure is more complicated and expensive to set up, but offers more protection and benefits for the owner.
Understanding a Business
Generally, a business begins with a business concept (the idea) and a name. Depending on the nature of the business, extensive market research may be necessary to determine whether turning the idea into a business is feasible and if the business can deliver value to consumers. The business name can be one of the most valuable assets of a firm; careful consideration should thus be given when choosing it. Businesses operating under fictitious names must be registered with the state.
Businesses most often form after the development of a business plan, which is a formal document detailing a business’s goals and objectives, and its strategies of how it will achieve the goals and objectives. Business plans are almost essential when borrowing capital to begin operations.
It is also important to determine the legal structure of the business. Depending on the type of business, it may need to secure permits, adhere to registration requirements, and obtain licenses to legally operate. In many countries, corporations are considered to be juridical persons, meaning that the business can own property, take on debt, and be sued in court.
How Does a Business Work?
Before starting a business, make sure you have a clear understanding of what constitutes a business, as well as any business-related activities. That includes knowing the federal, state, and local laws that pertain to your business. This knowledge will help you avoid any penalties and fines, which could cripple or end your business soon after it starts. This information will also help you develop a strong business plan for a successful start in the marketplace.
In the United States, most businesses register with the government in some capacity. Individuals who conduct business under their own name may not need to register their business with the government, but they may miss out on tax deductions and credits, such as the small business deduction, that individuals cannot claim.
Some freelancers, hobbyists, and people with side gigs may be surprised to learn they are actually engaged in business and need to declare their business income, according to the way their government defines a business. Organizations such as the Internal Revenue Service (IRS) offer a sort of profit test to determine whether a person or corporation is operating a claimed business.
Concept of Business
The business concept is the fundamental idea behind the business. The business model, plan, vision, and mission are developed based on this concept. Uber, for example, was started on the concept of aggregating taxi drivers and providing their services on demand under one brand. Every other business strategy was developed based on this concept.
Objective of the Business
The business objective is what makes the business go on and conduct its activities in a long run. It is the reason why the business exists. While most of the people argue that profit making is the core objective of every business. Few have come up with the new underlying objective.
According to the traditional concept, business exists only to earn profits by providing the goods and services to the customers.
According to the modern concept, the underlying objective of every business is customer satisfaction as this is what results in most profits. If the customer is satisfied, business excels.
Business sizes range from small owner-operated companies, such as family restaurants, to multinational conglomerates such as General Electric. Larger businesses may issue corporate stock to finance operations. In this case, the company is publicly traded and has reporting and operating restrictions. Alternatively, smaller businesses may operate more independently of regulators.
Types of Businesses
There are many types of business models, and businesses commonly operate in more than one area simultaneously. However, for the sake of generalizing the categories of business, the three main types are:
- Service, such as restaurants
- Manufacturing, such as industrial plants
- Retail, such as clothing stores
- Beyond the type of product or service provided, businesses can also be classified by
- their size and legal structure.
In North America, the North American Industry Classification System (NAICS) sets the standards for which businesses qualify as a small-to-medium-enterprise (SME). Size standards vary by industry. They may be determined by the size of the workforce or by the amount of revenue coming into an enterprise.
In the U.S., the IRS helps define the potential structures someone can choose while defining their business venture. Here are the most common business structures.
- Sole proprietorships: These are unincorporated businesses owned and operated by a single person.
- Partnerships: This occurs when two or more people share in the funding, labor, ownership, profits, and losses that come with a business venture.6
- Corporations: These businesses are owned by shareholders and can become massive enterprises.
- S corporations: These businesses are similar to corporations, but they’re taxed differently—passing income, losses, deductions, and any other credits through to shareholders to be taxed at individual rates.
Limited liability company (LLC): The rules that govern LLCs vary from state to state. Depending on where one lives, LLCs may offer favorable tax treatment or other perks.
The Goals of a Business
According to economist Milton Friedman, the main purpose of a business is to maximize profits for its owners, and in the case of a publicly-traded company, the stockholders are its owners. Others contend that a business’s principal purpose is to serve the interests of a larger group of stakeholders, including employees, customers, and even society as a whole. Philosophers often assert that businesses should abide by some legal and social regulations. Anu Aga, ex-chairperson of Thermax Limited, once said, “We survive by breathing but we can’t say we live to breathe. Likewise, making money is very important for a business to survive, but money alone cannot be the reason for business to exist. ”
Many observers would hold that concepts such as economic value added are useful in balancing profit-making objectives with other ends. They argue that sustainable financial returns are not possible without taking into account the aspirations and interests of other stakeholders such as customers, employees, society and the environment. This concept is called corporate social responsibility (CSR).
This conception suggests that a principal challenge for a business is to balance the interests of parties affected by the business, interests that are sometimes in conflict with one another. Former President Bill Clinton stated adamantly that major multinational companies must put their customers and employees’ interests before those of shareholders in order to promote economic development and growth, especially in emerging markets. For example, Alibaba, a Chinese Internet venture, strives to operate in the zone that Clinton calls “double-bottom line capitalism. ” The emerging new mantra is to create social progress as well as create profits. In a sense, corporate social responsibility highlights the fact that business, consumers and society are part of a shared ecosystem, and that the long-term health of this ecosystem must be maintained above all else.
Innovation as a Goal
Rohit Kishore persuades that business can also be viewed to exist for the purpose of creative expansion. Successful firms like Google manage to align their activities towards the purpose of creative expansion from the perspective of all stakeholders, especially employees. This also validates the growing importance of innovation as a core principle for corporation survival and success.
Advocates of business contract theory believe that a business is a community of participants organized around a common purpose. These participants have legitimate interests in how the business is conducted and, therefore, they have legitimate rights over its affairs. Most contract theorists see the enterprise being run by employees and managers as a kind of representative democracy.
Stakeholder theorists believe that people who have legitimate interests in a business also ought to have voice in how the business is run. However, stakeholder theorists take contract theory a step further, maintaining that people outside of the business enterprise ought to have a say in how the business operates. Thus, for example, consumers, even community members who could be affected by what the business does (for example, by the pollutants of a factory) ought to have some control over the business.
Business as Property
Some people believe that a business is essentially someone’s property, and, as such, that its owners have the right to dispose of it as they see fit (within the confines of the law and morality). They do not believe that workers or consumers have special rights over the property, other than the right not to be harmed by its use without their consent. In this conception, workers voluntarily exchange their labor for wages from the business owner; they have no more right to tell the owner how he will dispose of his property than the owner has to tell them how to spend their wages. Similarly, assuming the business has purveyed its goods honestly and with full disclosure, consumers have no inherent rights to govern the business, which belongs to someone else.
People who subscribe to this view generally point out that a property owner’s rights are constrained by morality. Thus, a homeowner cannot burn down his home and thereby jeopardize the entire neighborhood. Similarly, a business does not have an unlimited right to pollute the air in the manufacturing process.