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Business
Organization undertaking commercial, industrial, or professional activity
Business is the practice of making one’s living or making money by producing or buying and selling
products (such as goods and services). It is also “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. The taxation system for
businesses is different from that of the corporates. 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 public officials) to refer to a company,
such as a corporation or cooperative.
Corporations, in contrast with sole proprietors and partnerships, are a separate legal entity and
provide limited liability for their owners/members, as well as being subject to corporate tax rates. A
corporation is more complicated and expensive to set up, but offers more protection and benefits
for the owners/members.
Forms
Forms of business ownership vary by jurisdiction, but several common entities exist:
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
judgments against the business. All assets of the business belong to a sole proprietor, including, for
example, a computer infrastructure, any inventory, manufacturing equipment, or retail fixtures, as
well as any real property owned by the sole proprietor.
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.
Corporations’ owners have limited liability and the business has a separate legal personality from its
owners. Corporations can be either government-owned or privately owned, and 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.
A cooperative or co-op 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) 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, a general partnership or persons working on their own are
usually not as protected.
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.
Company limited by guarantee is commonly used where companies are formed for non-commercial
purposes, such as clubs or charities. The members guarantee the payment of certain (usually
nominal) amounts if the company goes into insolvent liquidation, but otherwise, they have no
economic rights in relation to the company. This type of company is common in England. A company
limited by guarantee may be with or without having share capital.
A company limited by shares is the most common form of the company used for business ventures.
Specifically, a limited company is a “company in which the liability of each shareholder is limited to
the amount individually invested” with corporations being “the most common example of a limited
company.” This type of company is common in England and many English-speaking countries. A
company limited by shares may be a
Publicly traded company or a
Privately held company.
A company limited by guarantee with a share capital is a hybrid entity, usually used where the
company is formed for non-commercial purposes, but the activities of the company are partly
funded by investors who expect a return. This type of company may no longer be formed in the UK,
although provisions still exist in law for them to exist.
An unlimited company with or without a share capital is a hybrid entity, a company where the
liability of members or shareholders for the debts (if any) of the company are not limited. In this
case, the doctrine of a veil of incorporation does not apply.
Less common types of companies are:
Most corporations by letters patent are corporations sole and not companies as the term is
commonly understood today.
Charter corporations were the only types of companies before the passing of modern companies
legislation. Now they are relatively rare, except for very old companies that still survive (of which
there are still many, particularly many British banks), or modern societies that fulfill a quasi-
regulatory function (for example, the Bank of England is a corporation formed by a modern charter).
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