UNIT 4: BUSINESSES

1. TYPES OF BUSINESSES
2. ELEMENTS OF A BUSINESS
3. CORPORATE SOCIAL RESPONSIBILITY
4. CORPORATE FINANCE
5. BUSINESS DUTIES

1.TYPES OF BUSINESSES
A business entity is an organization that uses economic resources to provide goods or services to customers
in exchange for money. Businesses can be classified according to different criteria:
1) Depending on the activity they run:
• Primary sector: this involves acquiring raw materials. It is sometimes known as extractive
production.
• Secondary production: it involves converting raw materials into components.
• Tertiary production: this refers to the commercial services that support the production and
distribution process.

2) Depending on who holds the ownership:

• Private company: the majority of capital (main investor/s) is held by individuals.
• Public company: the majority of capital is held by a public administration (government).

3) Depending on its legal form:

• Sole proprietorship.
It is owned by one individual only. While it is the simplest of the types of businesses, it also offers
the least amount of financial and legal protection for the owner. Unlike other corporations, sole
proprietorships do not have a separate legal existence from the business. Essentially, the owner of
the business shares the same identity as the company: the business and the owner are the same.
As a result, the owner is personally liable for the firm's debts and may have to pay for losses made
by the business out of their own pocket, this is called unlimited liability. This company is easy to set-
up and is the least costly among all forms of ownership.
The sole proprietorship form is usually adopted by small business entities.

• Limited liability company.

In this case, the business organization has a separate legal personality from its owners. There can
be only one owner or more. The minimum capital required to set up this company is €3,000. The
owners enjoy limited liability, which means they only take on as much liability as their financial stake
in the business. It is typical for familiar businesses.

• Corporation.
It is a business organization that has a separate legal personality from its owners. There can be only
one owner or more. The minimum capital required to set up this company is €60,000 and the capital
is divided and represented by shares. The owners (shareholders or stockholders) enjoy limited
liability. It is typical for big companies and multinationals.
 • Cooperative (co-op)
A cooperative is a business organization owned by a group of individuals and is operated for their
mutual benefit. There is not a minimum capital and their members have limited liability. A
cooperative differs from a corporation in that it has members, not shareholders, and they share
decision-making authority. Some examples of cooperatives are housing cooperatives and teaching
cooperatives.
The appropriate legal form for a company will depend on the:
- Minimum capital required.
- Number of partners.
- Limited or unlimited liability taken on by the owners.

ACTIVITY 1

Complete the table with the appropriate legal form:

COMPANY LEGAL FORM

Company where all owners have the same power
in decision making.
Familiar company with high profits foreseen.
Big company that produces machinery and needs
great amount of money.
A plumber.

2.ELEMENTS OF A BUSINESS
Every business needs some elements to be successful. There are four main elements to take into account:
- Human resources.
They involve all the people related to the business such as owners, managers, workers…

- Assets and liabilities.

An asset is anything of value or a resource of value that can be converted into cash. For a company,
an asset might generate revenue or a company might benefit in some way from owning or using the
asset. Assets can include tangible assets such as machines, property, raw materials and inventory
as well as intangible assets such as patents, royalties, and other intellectual property.
A liability is something that is owed to somebody else. For example, a loan is a liability.
Liabilities can be contrasted with assets. Liabilities refer to things that you owe or have borrowed;
assets are things that you own or are owed.

- Organization
Organizing a company involves setting functional areas, departments or business units, that is, the
grouping of activities or processes on the basis of their need in accomplishing one or more tasks.
The organization depends on the type of business being practiced but the most common functional
areas are:
 Purchasing: Responsible for the procurement and storage of raw materials and supplies.
Production: Concerned in manufacturing products, where inputs (raw materials) are converted into
finished output through a series of production process.
Human resource: Responsible for recruiting the right people with the required skills, qualifications
and experience, for determining salaries and for training employees.
Marketing: Responsible for promotional activities, advertising and distribution.
Marketing consists of all that a company does to identify customers’ needs and design products and
services that meet those needs. The marketing function also includes promoting goods and services,
determining how the goods and services will be delivered, and developing a pricing strategy to
capture market share while remaining competitive. In day’s technology-driven business
environment, marketing is also responsible for building and overseeing a company’s Internet
presence (e.g., the company Web site, blogs, social media campaigns, etc.). Today, social media
marketing is one of the fastest growing sectors within the marketing function.
Finance: Involves planning for, obtaining, and managing a company’s funds.
Management: It is the backbone of the business. Its function is to handle the business, planning and
decision-making. This department links with other departments to ensure the flow of information.
A business organization is displayed by an organigram (also organogram or organizational chart). An
organigram is a diagram that shows the structure of an organization and the relationships and
relative ranks of its parts and positions/jobs.

- Business environment
It includes external factors that either directly or indirectly affect it. These factors can range from
individuals, government regulations, environmental concerns, to other organizations and
businesses.
Al these factors may be general factors or specific factors. On one hand, general factors exist in
society and the economy regardless of the business’s existence. They affect all the institutions.
These are political, legal, technological, and other such aspects. General factors affect every
business regardless of their size or market. On the other hand, specific factors are directly related
to the business such as customers, target market, competitors, suppliers, etc. Each business has its
own set of specific factors that define its environment.

ACTIVITY 2
Draw the possible organigram of a company that manufactures vehicles and indicates its elements.
3. CORPORATE SOCIAL RESPONSIBILITY (CSR)
The actions of companies have significant impacts on the lives of citizens. Not just in terms of the products
and services they offer or the jobs and opportunities they create, but also in terms of working conditions,
human rights, health, the environment, innovation, education and training. Nowadays, companies are
becoming aware of their responsibility and impact on society and that is why Corporate Social Responsibility
has emerged. Thus, CSR is defined as the social, environmental and ethical engagement taken on by
companies, while at the same time addressing the expectations of shareholders and stakeholders.

4.CORPORATE FINANCE
Financing is the process of providing funds for business activities. Financial resources can be classified
according to the repayment term:
- Long term resources. The repayment term is longer than a year.
- Short term resources. The repayment term is before a year.
There are two main types of financing available for companies, i.e., two sources of capital: debt financing
and equity financing. Both debt and equity have their advantages and disadvantages. Most companies use
a combination of both to finance operations.
Debt financing
Debt is a loan that must be paid back often with interest.
Equity financing
There are two sources of equity financing.
a. Capital. Using owners´ capital to provide funding for a project or company. Corporations
can alternatively sell shares of the company to investors to raise capital. Investors, or
shareholders, expect that there will be an upward trend in value of the company (or
appreciate in value) over time to make their investment a profitable purchase.
b. Reserves. When companies make profit, they must decide either to distribute it among
the shareholders either keep it for future needs. If companies decide to retain earnings
in form of reserves, it is a way of self-financing without an explicit cost.

6. BUSINESS DUTIES
Businesses have two main duties to finance public sector:
Social contributions
Social contributions are paid on a compulsory basis by employers and employees and self-employed
persons to social security system. Protection provided by social security includes (covers) healthcare,
invalidity, unemployment and retirement. The employer and employee share the cost of insurance
contributions. The standard employee contribution rate is currently 4.7%, 1.55% is unemployment and
0.1% is towards occupational training. The employer will contribute 23.6% toward social security.
Tax duties
The main tax paid by companies is the corporate income tax. The corporate income tax is calculated by
multiplying the standard rate of 25% by the profit (difference between revenue and costs)

GLOSSARY
ASSET: Activo (conjunto de bienes y derechos propiedad de una empresa).
CASH: Efectivo (dinero).
COOPERATIVE: Cooperativa.
CORPORATE FINANCE: Financiación empresarial.
CORPORATE INCOME TAX: Impuesto de sociedades.
CORPORATE SOCIAL RESPONSIBILITY: Responsabilidad social corporativa.
CORPORATION: Sociedad anónima.
CURRENT ASSET: Activo corriente
DEBT FINANCING: Financiación ajena.
ENVIRONMENT: Entorno. Medio Ambiente.
EQUITY: Patrimonio neto o fondos propios.
EQUITY FINANCING: Financiación propia.
HUMAN RESOURCE: Recursos Humanos.
INTEREST RATE: Tipo de interés.
INVENTORY: Existencias, inventarios.
LIABILITY: Pasivo (obligaciones pendientes de pago de una empresa)
LIMITED LIABILITY: Responsabilidad limitada.
LIMITED LIABILITY COMPANY: Sociedad de responsabilidad limitada.
LOAN: Préstamo.
MANAGEMENT: Dirección.
NON-CURRENT ASSET: Activo no corriente.
ORGANIGRAM (ALSO ORGANOGRAM): Organigrama.
PURCHASING: Aprovisionamiento (compras).
RESERVES: Reservas.
SELF-FINANCING: Autofinanciación.
SHARE: Acción.
SHAREHOLDER = STOCKHOLDER: Accionista.
SOCIAL CONTRIBUTIONS: Cotizaciones sociales.
SOLE PROPRIETORSHIP: Propietario individual.
STAKEHOLDERS: Grupos de interés.
SUPPLIER: Proveedor.
SUPPLIES: Suministros.
TARGET MARKET: Mercado objetivo.
TAX: Impuesto.
UNLIMITED LIABILITY: Responsabilidad ilimitada.