A business entity is not necessarily separate from the owner and the creditors can hold the owner liable for debts the business has acquired except for limited liability company.[6] The taxation system for businesses is different from that of the corporates. A business structure does not allow for corporate tax rates. The proprietor is personally taxed on all income from the business.
A distinction is made in law and public offices between the term business and a company (such as a corporation or cooperative). Colloquially, the terms are used interchangeably.
Corporations are distinct from sole proprietors and partnerships. Corporations are separate and unique legal entities from their shareholders; as such they provide limited liability for their owners and members. Corporations are subject to corporate tax rates. Corporations are also more complicated, expensive to set up, along with the mandatory reporting of quarterly or annual financial information to the national (or state) securities commissions or company registers, but offer more protection and benefits for the owners and shareholders.[6]
Individuals who are not working for a government agency (public sector) or for a mission-driven charity (nonprofit sector), are almost always working in the private sector, meaning they are employed by a business (formal or informal), whose primary goal is to generate profit, through the creation and capture of economic value above cost. In almost all countries, most individuals are employed by businesses (based on the minority percentage of public sector employees, relative to the total workforce).
Forms of business ownership vary by jurisdiction, but several common entities exist:
- A sole proprietorship, also known as a sole trader, is owned by one person and operates for their benefit. The owner operates the business alone and may hire employees. A sole proprietor has unlimited liability for all obligations incurred by the business, whether from operating costs or judgments against the business. All assets of the business belong to a sole proprietor, including, for example, a computer infrastructure, any inventory, manufacturing equipment, or retail fixtures, as well as any real property owned by the sole proprietor.[7]
- A partnership is a 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 most prevalent types of for-profit partnerships are general partnerships, limited partnerships, and limited liability partnerships.[8]
- Corporations‘ owners have limited liability, and the business has a legal personality separate from its owners. Corporations can be either government-owned or privately owned, and they can organize either for profit or as nonprofit organizations. A privately owned, for-profit corporation is owned by its shareholders, who elect a board of directors to direct the corporation and hire its managerial staff. A privately owned, for-profit corporation can be either privately held by a small group of individuals, or publicly held, with publicly traded shares listed on a stock exchange.[9]
- A cooperative or co-op is a limited-liability business that can organize as for-profit or not-for-profit. A cooperative differs from a corporation in that it has members, not shareholders, and they share decision-making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy.
- Limited liability companies (LLC) 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, a general partnership or persons working on their own are usually not as protected.[10]
- A franchise is a system in which entrepreneurs purchase the rights to open and run a business from a larger corporation.[11] Franchising in the United States is widespread and is a major economic powerhouse. One out of twelve retail businesses in the United States are franchised and 8 million people are employed in a franchised business.[12]
- Company limited by guarantee is commonly used where companies are formed for non-commercial purposes, such as clubs or charities. The members guarantee the payment of certain (usually nominal) amounts if the company goes into insolvent liquidation, but otherwise, they have no economic rights in relation to the company. This type of company is common in England. A company limited by guarantee may be with or without having share capital.
- A company limited by shares is the most common form of the company used for business ventures. Specifically, a limited company is a “company in which the liability of each shareholder is limited to the amount individually invested” with corporations being “the most common example of a limited company.”[13] This type of company is common in England and many English-speaking countries. A company limited by shares may be a
- A company limited by guarantee with a share capital is a hybrid entity, usually used where the company is formed for non-commercial purposes, but the activities of the company are partly funded by investors who expect a return. This type of company may no longer be formed in the UK, although provisions still exist in law for them to exist.[14]
- An unlimited company with or without a share capital is a hybrid entity, a company where the liability of members or shareholders for the debts (if any) of the company are not limited. In this case, the doctrine of a veil of incorporation does not apply.
Less common types of companies are:
- Most corporations by letters patent are corporations sole and not companies as the term is commonly understood today.
- Charter corporations were the only types of companies before the passing of modern companies legislation. Now they are relatively rare, except for very old companies that still survive (of which there are still many, particularly many British banks), or modern societies that fulfill a quasi-regulatory function (for example, the Bank of England is a corporation formed by a modern charter).
- Statutory companies are certain companies that have been formed by a private statute passed in the relevant jurisdiction, and are relatively rare today.
“Ltd after the company’s name signifies limited company, and PLC (public limited company) indicates that its shares are widely held.”[15]
In legal parlance, the owners of a company are normally referred to as the “members”. In a company limited or unlimited by shares (formed or incorporated with a share capital), this will be the shareholders. In a company limited by guarantee, this will be the guarantors. Some offshore jurisdictions have created special forms of offshore company in a bid to attract business for their jurisdictions. Examples include “segregated portfolio companies” and restricted purpose companies.
There are, however, many, many sub-categories of types of company that can be formed in various jurisdictions in the world.
Companies are also sometimes distinguished into public companies and private companies for legal and regulatory purposes. Public companies are companies whose shares can be publicly traded, often (although not always) on a stock exchange which imposes listing requirements/Listing Rules as to the issued shares, the trading of shares and a future issue of shares to help bolster the reputation of the exchange or particular market of exchange. Private companies do not have publicly traded shares, and often contain restrictions on transfers of shares. In some jurisdictions, private companies have maximum numbers of shareholders.
A parent company is a company that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors; the second company being deemed as a subsidiary of the parent company. The subsidiary company can be allowed to maintain its own board of directors.[16] The definition of a parent company differs by jurisdiction, with the definition normally being defined by way of laws dealing with companies in that jurisdiction.[16]
Classifications
Main article: Industry classification
- Agriculture, such as the domestication of fish, animals, and livestock, as well as lumber, oil, vegetables, fruits, etc.
- Mining businesses that extract natural resources and raw materials, such as wood, petroleum, natural gas, ores, metals or minerals.
- Service businesses offer intangible goods or services and typically charge for labor or other services provided to government, to consumers, or to other businesses. Interior decorators, beauticians, hair stylists, make-up artists, tanning salons, laundromats, dry cleaners, and pest controllers are service businesses.
- Financial services businesses include banks, brokerage firms, credit unions, credit cards, insurance companies, asset and investment companies such as private-equity firms, private-equity funds, real estate investment trusts, sovereign wealth funds, pension funds, mutual funds, index funds, hedge funds, stock exchanges, and other companies that generate profits through investment and management of capital.
- Transportation businesses such as railways, airlines, and shipping companies deliver goods and individuals to their destinations for a fee.
- Utilities produce public services such as water, electricity, waste management or sewage treatment. These industries are usually operated under the charge of a public government.
- Entertainment companies and mass media agencies generate profits primarily from the sale of intellectual property. They include film studios and production houses, mass media companies such as cable television networks, online digital media agencies, talent agencies, mobile media outlets, newspapers, book and magazine publishing houses.
- Sports organizations are involved in producing, facilitating, promoting, or organizing any activity, experience, or business enterprise focused on sports. They make their profits by selling goods and services that are sports related.
- Industrial manufacturers produce products, either from raw materials or from component parts, then export the finished products at a profit. They include tangible goods such as cars, buses, medical devices, glass, or aircraft.
- Real estate businesses sell, invest, construct and develop properties, including land, residential homes, and other buildings.
- Retailers, wholesalers, and distributors act as middlemen and get goods produced by manufacturers to the intended consumers; they make their profits by marking up their prices. Most stores and catalog companies are distributors or retailers.
Forms of business ownership vary by jurisdiction, but several common entities exist:
- A sole proprietorship, also known as a sole trader, is owned by one person and operates for their benefit. The owner operates the business alone and may hire employees. A sole proprietor has unlimited liability for all obligations incurred by the business, whether from operating costs or judgments against the business. All assets of the business belong to a sole proprietor, including, for example, a computer infrastructure, any inventory, manufacturing equipment, or retail fixtures, as well as any real property owned by the sole proprietor.[7]
- A partnership is a 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 most prevalent types of for-profit partnerships are general partnerships, limited partnerships, and limited liability partnerships.[8]
- Corporations‘ owners have limited liability, and the business has a legal personality separate from its owners. Corporations can be either government-owned or privately owned, and they can organize either for profit or as nonprofit organizations. A privately owned, for-profit corporation is owned by its shareholders, who elect a board of directors to direct the corporation and hire its managerial staff. A privately owned, for-profit corporation can be either privately held by a small group of individuals, or publicly held, with publicly traded shares listed on a stock exchange.[9]
- A cooperative or co-op is a limited-liability business that can organize as for-profit or not-for-profit. A cooperative differs from a corporation in that it has members, not shareholders, and they share decision-making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy.
- Limited liability companies (LLC) 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, a general partnership or persons working on their own are usually not as protected.[10]
- A franchise is a system in which entrepreneurs purchase the rights to open and run a business from a larger corporation.[11] Franchising in the United States is widespread and is a major economic powerhouse. One out of twelve retail businesses in the United States are franchised and 8 million people are employed in a franchised business.[12]
- Company limited by guarantee is commonly used where companies are formed for non-commercial purposes, such as clubs or charities. The members guarantee the payment of certain (usually nominal) amounts if the company goes into insolvent liquidation, but otherwise, they have no economic rights in relation to the company. This type of company is common in England. A company limited by guarantee may be with or without having share capital.
- A company limited by shares is the most common form of the company used for business ventures. Specifically, a limited company is a “company in which the liability of each shareholder is limited to the amount individually invested” with corporations being “the most common example of a limited company.”[13] This type of company is common in England and many English-speaking countries. A company limited by shares may be a
- A company limited by guarantee with a share capital is a hybrid entity, usually used where the company is formed for non-commercial purposes, but the activities of the company are partly funded by investors who expect a return. This type of company may no longer be formed in the UK, although provisions still exist in law for them to exist.[14]
- An unlimited company with or without a share capital is a hybrid entity, a company where the liability of members or shareholders for the debts (if any) of the company are not limited. In this case, the doctrine of a veil of incorporation does not apply.
Less common types of companies are:
- Most corporations by letters patent are corporations sole and not companies as the term is commonly understood today.
- Charter corporations were the only types of companies before the passing of modern companies legislation. Now they are relatively rare, except for very old companies that still survive (of which there are still many, particularly many British banks), or modern societies that fulfill a quasi-regulatory function (for example, the Bank of England is a corporation formed by a modern charter).
- Statutory companies are certain companies that have been formed by a private statute passed in the relevant jurisdiction, and are relatively rare today.
“Ltd after the company’s name signifies limited company, and PLC (public limited company) indicates that its shares are widely held.”[15]
In legal parlance, the owners of a company are normally referred to as the “members”. In a company limited or unlimited by shares (formed or incorporated with a share capital), this will be the shareholders. In a company limited by guarantee, this will be the guarantors. Some offshore jurisdictions have created special forms of offshore company in a bid to attract business for their jurisdictions. Examples include “segregated portfolio companies” and restricted purpose companies.
There are, however, many, many sub-categories of types of company that can be formed in various jurisdictions in the world.
Companies are also sometimes distinguished into public companies and private companies for legal and regulatory purposes. Public companies are companies whose shares can be publicly traded, often (although not always) on a stock exchange which imposes listing requirements/Listing Rules as to the issued shares, the trading of shares and a future issue of shares to help bolster the reputation of the exchange or particular market of exchange. Private companies do not have publicly traded shares, and often contain restrictions on transfers of shares. In some jurisdictions, private companies have maximum numbers of shareholders.
A parent company is a company that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors; the second company being deemed as a subsidiary of the parent company. The subsidiary company can be allowed to maintain its own board of directors.[16] The definition of a parent company differs by jurisdiction, with the definition normally being defined by way of laws dealing with companies in that jurisdiction.[16]
Classifications
“Ltd after the company’s name signifies limited company, and PLC (public limited company) indicates that its shares are widely held.”[15]
In legal parlance, the owners of a company are normally referred to as the “members”. In a company limited or unlimited by shares (formed or incorporated with a share capital), this will be the shareholders. In a company limited by guarantee, this will be the guarantors. Some offshore jurisdictions have created special forms of offshore company in a bid to attract business for their jurisdictions. Examples include “segregated portfolio companies” and restricted purpose companies.
There are, however, many, many sub-categories of types of company that can be formed in various jurisdictions in the world.
Companies are also sometimes distinguished into public companies and private companies for legal and regulatory purposes. Public companies are companies whose shares can be publicly traded, often (although not always) on a stock exchange which imposes listing requirements/Listing Rules as to the issued shares, the trading of shares and a future issue of shares to help bolster the reputation of the exchange or particular market of exchange. Private companies do not have publicly traded shares, and often contain restrictions on transfers of shares. In some jurisdictions, private companies have maximum numbers of shareholders.
A parent company is a company that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors; the second company being deemed as a subsidiary of the parent company. The subsidiary company can be allowed to maintain its own board of directors.[16] The definition of a parent company differs by jurisdiction, with the definition normally being defined by way of laws dealing with companies in that jurisdiction.[16]