VARIOUS FORMS OF BUSINESS

1. Service Business
A service type of business provides intangible products (products with no physical form). Service type
firms offer professional skills, expertise, advice, and other similar products.
Examples of service businesses are: salons, repair shops, schools, banks, accounting firms, and law firms.
2. Merchandising Business
This type of business buys products at wholesale price and sells the same at retail price. They are known
as "buy and sell" businesses. They make profit by selling the products at prices higher than their
purchase costs.
A merchandising business sells a product without changing its form. Examples are: grocery stores,
convenience stores, distributors, and other resellers.
3. Manufacturing Business
Unlike a merchandising business, a manufacturing business buys products with the intention of using
them as materials in making a new product. Thus, there is a transformation of the products purchased.
A manufacturing business combines raw materials, labor, and factory overhead in its production process.
The manufactured goods will then be sold to customers.
Hybrid Business
Hybrid businesses are companies that may be classified in more than one type of business. A restaurant,
for example, combines ingredients in making a fine meal (manufacturing), sells a cold bottle of wine
(merchandising), and fills customer orders (service).
Nonetheless, these companies may be classified according to their major business interest. In that case,
restaurants are more of the service type – they provide dining services.
Forms of Business Organization
These are the basic forms of business ownership:
1. Sole Proprietorship
A sole proprietorship is a business owned by only one person. It is easy to set-up and is the least costly
among all forms of ownership.
The owner faces unlimited liability; meaning, the creditors of the business may go after the personal
assets of the owner if the business cannot pay them.
The sole proprietorship form is usually adopted by small business entities.
2. Partnership
A partnership is a business owned by two or more persons who contribute resources into the entity. The
partners divide the profits of the business among themselves.
In general partnerships, all partners have unlimited liability. In limited partnerships, creditors cannot go
after the personal assets of the limited partners.
3. Corporation
A corporation is a business organization that has a separate legal personality from its owners. Ownership
in a stock corporation is represented by shares of stock.
The owners (stockholders) enjoy limited liability but have limited involvement in the company's
operations. The board of directors, an elected group from the stockholders, controls the activities of the
corporation.
In addition to those basic forms of business ownership, these are some other types of organizations that
are common today:
Limited Liability Company
Limited liability companies (LLCs) in the USA, are hybrid forms of business that have characteristics of
both a corporation and a partnership. An LLC is not incorporated; hence, it is not considered a
corporation.
Nonetheless, the owners enjoy limited liability like in a corporation. An LLC may elect to be taxed as a
sole proprietorship, a partnership, or a corporation.
Cooperative
A cooperative is a business organization owned by a group of individuals and is operated for their mutual
benefit. The persons making up the group are called members. Cooperatives may be incorporated or
unincorporated.
Some examples of cooperatives are: water and electricity (utility) cooperatives, cooperative banking,
credit unions, and housing cooperatives.
Brings Specialization in Work
This is one of the important functions of organising as a specialization of work
leads to an increase in efficiency and reduce the wastage of resources. This
function is done by dividing the whole task into small units and these units are
then allocated to different people who when performing the same task again
and again over become specialize in a particular task. This specialization
increases the overall efficiency and leads to an increase in the profits of the
company.

Efficient Usage of Resources

The organization helps in fuller utilization of resources thereby increasing
overall efficiency and avoid any wastage of resources. This efficiency is
achieved by allocating the right job to the right man according to their skills so
that they can perform their duties with high efficiency.

Better Communication
Organising plays a very effective role in promoting coordination among
different sections of the organisation. This coordination in the organisation
helps in better and convenient communication among different peoples
working there. Any important message or instructions can be easily convened
to all the people working there.
Easy Acquiring
Organising helps in easy acquiring of changes according to environmental
needs. For the better and flexible functioning of the organisation, organising
always aims at easy and fast modification of the structures of the
management. Also. it provides for the way that helps in continuous and stable
growth despite various changes.

Better Administration
Organising is the one which is solely responsible for bringing coordination in
the organisation. It brings together all those departments which are performing
the same task which makes it very easy to control their functioning and
performance. This way organising through the coordination of all activities
helps in better administration.

Increase Productivity & Job Satisfaction

An organisation which is properly organised will automatically be able to
increase its productivity and also be able to lower its cost. Also when a task is
provided to the employees according to their skills, this brings more and more
efficiency in their performance and they become expert in their task. Therefore
proper and systematic organising lead to increase the overall productivity at
lower costs.

Better Working Relationship

Proper organising helps in proper defining of the relationship between various
employees in an organisation. Authority and responsibilities of different people
in the organisation are very well defined which clearly shows their roles. Thus
this better relationships among people in the organisation ultimately help in
achieving maximum efficiency at a lower cost.

There are four main types of business formations, and each one has its own
advantages and disadvantages. Some are easy and inexpensive to form while
others provide you limited liability protection that protects your personal assets
from creditor claims and lawsuits stemming from your business operations.
Some business owners start off using one type of business formation and
then change to a different form as their businesses grow.

Sole Proprietorship

A sole proprietorship is the simplest and least expensive type of business to

form. There are no incorporation documents to file or business notices to run
in the newspaper. You may have to get a state or local business license
depending on your occupation. A sole proprietorship has only one owner. You
can do business under your own name or apply for a "doing-business-as"
name to give your business a distinctive name, but the business and the
proprietor remain one entity. You have no protection from lawsuits or creditor
claims. Your personal assets can be used to satisfy a business debt or legal
judgment. You report your business income and expenses to the Internal
Revenue Service on Schedule C, which is filed with your individual income tax
return.
Partnership

In a partnership, there are no documents to file with your state. However,

partners usually have a partnership agreement drawn up between them
stating how the partnership operates and how the profits and losses are
shared. Most states hold that each partner has unlimited liability for business
debts, the actions of the other partners and lawsuits. The business profits and
losses flow through the partnership and are reported on each partner’s
individual income tax return. The partnership must file a partnership
information return with the IRS every year.
Limited Liability Company

If your state statues allow it, you can file articles of organization or a certificate
of formation to form a limited liability company. LLCs provide their owners,
who are known as members, with limited liability protection. When you open a
business bank account or take on debt, the LLC is responsible for the
accounts instead of the individual members. LLC profits and losses flow
through the company to each member. LLC members must decide if they
want to be taxed as a partnership or a corporation. LLCs taxed as
partnerships file the partnership tax return and LLCs taxed as corporations
must file either a C corporation or S corporation tax return.
Corporation

Corporations are the most formal and expensive of the different business
formations. You form a corporation by filing the Articles of Incorporation with
your state’s department of corporations. Corporations provide limited liability
protection for their owners. C corporations retain their profits and losses at the
corporate level but have double taxation. They are taxed on their earnings,
and shareholders are taxed on their corporate dividends. With S corporations,
profits and losses flow through the business to the owners. Both C and S
corporations must file corporate tax returns, file annual reports with their
incorporating state, conduct annual meetings and meet federal and state
record-keeping obligations.
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