Types of business organization
In this post, we explain the types of business organizations, which are commonly classified into three: Individual or private entrepreneurship, Associations, and Corporations.
Commercial entities (entrepreneurs) can be sole owners of the free capital in their shares in the market: natural persons, as well as owners of companies that act as legal entities.
In countries with market economies, hundreds of thousands of people, individually or in groups, at the risk of their own capital, open new companies annually.
They often mistakenly confuse the concept of business with the concepts of entrepreneurship and commerce.
A company is any type of activity in the field of social production that generates income or other personal benefits. But economic activity can be carried out in the realm of material and intangible production.
Therefore, it is more correct to subdivide businesses into entrepreneurship (economic activity in the field of material production) and commerce (economic activity in the intangible environment). The result of business activity is tangible properties (goods) and intangible business resources (services).
Business can be conducted in three main ways:
- Individual or private entrepreneurship.
- Corporations (joint-stock company).
An individual enterprise is a business owned by one person. The owner of an individual business simultaneously performs the functions of a manager. This is the most common form of business, characteristic of small shops, service companies, farms, professional activities of lawyers, doctors, etc.
The association is a business, owned by two or more people. The advantages of the association are that it is easy to organize, and the union of partners allows you to attract additional funds and new ideas.
- Limited financial resources.
- Ambiguous understanding of the objectives of the association by its participants.
- Difficulties in determining the participation of each participant in the income and losses of the association, in the division of the assets acquired together.
A corporation is a collection of people united for joint ventures as a single legal entity. The ownership of the corporation is divided into shares for shares. Therefore, the owners of corporations are called shareholders, and the corporation itself – joint-stock company. Corporation owners have limited liability for the debts of the corporation, determined by their contributions to the shares.
The advantages of corporations include:
- Unlimited opportunities to attract cash capital by selling stocks and bonds.
- Separation of the rights of the shareholders in property and personnel.
The disadvantages of the corporate form of business organization include:
- The double tax on the income of the corporation paid in the form of dividends to the shareholders: the first time as part of the company’s profits and the second as part of the personal income of a shareholder.
- Favorable opportunities for economic crime. The issue and sale of shares that have no real value are possible.
- Separation of ownership and control functions. Incorporations whose shares are dispersed among numerous owners, the control mission is separate from the ownership task. Shareholders are interested in maximum dividends, and managers are trying to reduce them to get the money in circulation.
There are other disadvantages of corporations, but their advantages outweigh their disadvantages.
Business is the relationship between market participants with respect to their joint activities aimed at obtaining profit (or other forms of income) from the use of capital.
Business: initiative economic activity carried out at the expense of own or borrowed funds, at its own risk and responsibility, which establishes the main objectives of generating income and developing its own establishment.
Business as a capitalist relationship is characterized by:
- The presence of initial capital invested in a particular business.
- Intentional nature of initial capital investment: earning a profit (income) on invested capital.
- Establish certain relationships with other market participants regarding the use of capital (both initial and subsequent).
The economic relationships that people establish when doing business are so complex and multifaceted that they do not clearly define the limits of this activity. Therefore, corporate action is defined as a legal concept.
Business is always a legal form of human activity that can only be carried out within the framework of one of the forms of management established by law.