Organization and Government Regulation

Most legal jurisdictions specify the forms of ownership that a business can take, creating a body of commercial law for each type.

1.  The size and scope of the business firm and its structure, management, and ownership, broadly analyzed in the theory of the firm. Generally a smaller business is more flexible, while larger businesses, or those with wider ownership or more formal structures, will usually tend to be organized as corporations or (less often) partnerships. In addition, a business that 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 in certain ways.
   
2. Limited liability Corporations LLC, limited liability partnerships, 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, unincorporated businesses or persons working on their own are usually not so protected.
  
3. Tax advantages. Different structures are treated differently in tax law, and may have advantages for this reason.
   
4. Disclosure and compliance requirements. Different business structures may be required to make less or more information public (or report it to relevant authorities), and may be bound to comply with different rules and regulations.

Many businesses are operated through a separate entity such as a corporation or a partnership (either formed with or without limited liability). 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 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 general partnership. The terms of a partnership are 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 that person 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 simplified, advantageous, or slightly different tax treatment.
  
4. 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."

Basic Forms of Ownership

Although forms of business ownership vary by jurisdiction, there are several common forms:

1. Sole proprietorship: A sole proprietorship is a for-profit business owned by one person. The owner may operate on his or her own or may employ others. The owner of the business has unlimited liability for the debts incurred by the business.

2. Partnership: A partnership is a for-profit 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 typical classifications of partnerships are general partnerships, limited partnerships, and limited liability partnerships.

3. Corporation: A corporation is a limited liability business that has a separate legal personality from its members. Corporations can be either government-owned or privately-owned, and privately-owned corporations can organize either for-profit or not-for-profit. A for-profit corporation is owned by shareholders who elect a board of directors to direct the corporation and hire its managerial staff. A for-profit corporation can be either privately held or publicly held.

4.  Cooperative: Often referred to as a "co-op", a cooperative is a limited liability business that can organize for-profit or not-for-profit. A cooperative differs from a for-profit corporation in that it has members, as opposed to shareholders, who share decision-making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy.

Classifications Business

1. Agriculture and mining businesses are concerned with the production of raw material, such as plants or minerals.

  

2. Financial businesses include banks and other companies that generate profit through investment and management of capital.

   

3. Information businesses generate profits primarily from the resale of intellectual property and include movie studios, publishers and packaged software companies.

  

4. 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.

   

5. Real estate businesses generate profit from the selling, renting, and development of properties, homes, and buildings.

   

6. 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 catalog companies are distributors or retailers.

  

7. Service businesses offer intangible goods or services and typically generate a profit by charging for labor or other services provided to government, other businesses, or consumers. Organizations ranging from house decorators to consulting firms, restaurants, and even entertainers are types of service businesses.

   

8. Transportation businesses deliver goods and individuals from location to location, generating a profit on the transportation costs.

   

9. Utilities produce public services such as electricity or sewage treatment, usually under a government charter.

There are many other divisions and subdivisions of businesses. The authoritative list of business types for North America is generally considered to be the North American Industry Classification System, or NAICS. The equivalent European Union list is the Statistical Classification of Economic Activities in the European Community (NACE).

 

Top 10 Tips for Writing Your Business Plan

As you develop your business plan, it's easy to make mistakes or leave out important elements. Here are a few of the most common business planning pitfalls and some tips on how to avoid them:

1. Create a vision. It's tempting to roll up your sleeves and plunge right into the details of your business: evaluating products, studying market segments, and sizing up your competition. Yet it's possible to get so caught up in the process of planning a business that you lose sight of what you're planning for.

Before you get lost in the details, take a step back. Outline a clear vision and a coherent set of values for your company. Develop a mission statement and use it to define short-term goals and priorities. Once you have a clear road map for your business, you can plan your journey with more confidence.

2. A budget isn't the same thing as a plan. You can't create a solid business plan without a budget and a financial forecast. But a budget should be the product of all the other elements in your plan. If you don't have a clear picture of your industry, customers, competitors, and market conditions before you develop a budget, your numbers aren't likely to reflect reality.

3. Don't ignore your customers. This may sound obvious, but too many entrepreneurs assume they know exactly what their customers need without bothering to ask. Take the time to learn about your customers, and build your business plan around their needs and desires.

4. Don't shortchange the competition. If you assume your firm will be the only game in town or if you fail to take existing competitors seriously, you're asking for trouble. Your competitors can be a great source of information about what works and what doesn't.

5. Be prepared to take risks. Creating a business plan isn't about avoiding risk; it's about understanding and managing risk. That's why a good business plan anticipates possible challenges and includes a variety of scenarios for meeting those challenges. There's a difference between a calculated risk and recklessness, and your plan can help you make that distinction.

6. Get a second (or third) opinion. The most experienced entrepreneur can still benefit from a different point of view. Even if you're the only person involved in your business, find someone who can study your plan objectively and point out possible weaknesses you might have missed.

7. Expect the unexpected. Every business plan needs some wiggle room to allow for unexpected changes. Part of this involves creating budgets and marketing plans with some built-in flexibility; but adapting to change also requires you to accept that you might have to modify or even abandon business practices that worked well in the past.

8. Don't forget what makes you unique. A cookie-cutter business plan might help you get started, but it won't help you succeed. And while it helps to look at your competitors, don't model your business after them. After all, you're in business to beat the competition. Learn from your competitors' strengths, but also learn how to spot their weaknesses and use them to improve your own business plan.

9. What's the point? Building a business involves hard work and struggle. But it should also include a clear set of rewards, both for you and your employees. When you set goals in your business plan, include some concrete motivation that goes beyond the satisfaction of a job well done.

10. Don't skip the plan! Of course, the biggest mistake of all is failing to create a business plan in the first place. Planning is hard work, and there's no guarantee it will make your business succeed. But a good plan is still the best way to turn your vision into a realistic, coherent business.