What is Business?
The word Business originated from the word “busy.” Business is an activity of producing, buying, and selling goods and services for profit. Basically it’s a governed economic activity to generate money from economic activities or transactions.
How does business work
Starting a business can be exciting, but it involves several steps. It all begins with an idea and a name. However, before starting a business, extensive research is crucial to assess its viability in the market.
Often, businesses require a business plan, a document outlining their goals, strategies, and plans for achieving them. This plan becomes crucial, especially when seeking funding to launch operations.
Next, determining the legal structure is important. This involves obtaining the necessary permits, licenses, and registrations to operate legally. In some countries, corporations are considered separate legal entities, allowing them to own property, incur debt, and be sued independently.
While most businesses aim to generate profit (for-profit), others prioritize social impact or specific causes. These non-profit organizations can be charities, educational institutions, or social service providers working to improve their communities without the primary goal of financial gain.
Types of Businesses
Businesses come in different shapes and sizes, and each operates under a specific legal and tax framework. Here's a breakdown of the most common structures:
1. Sole Proprietorship: This is a one-person show where the owner has complete control and bears all legal and financial responsibility. Profits and losses pass directly through the owner's personal tax return.
2. Partnership: Two or more individuals join forces in a partnership, contributing resources and sharing profits and losses proportionally. Similar to sole proprietorships, partners are personally liable for the business's debts and obligations.
3. Corporation: This arrangement severs the connection between ownership and day-to-day operations. Ownership is fragmented into shares held by shareholders, providing them with limited liability for the company's obligations. Despite the protection afforded to owners in corporations, they encounter double taxation, wherein the corporation is taxed on its profits, and shareholders are taxed on the dividends they receive.
4. Limited Liability Company (LLC): Combining features of both partnerships and corporations, LLCs offer limited liability to their members (owners) and pass-through taxation, similar to partnerships. This means profits or losses are passed through to individual members' tax returns, avoiding double taxation.