What is Business - In simple words

Concept

Businesses are that activities which aims to provide goods and service to the society. Some businesses provide products like machinery, foods, soap, furniture and some businesses provide services such as banks, insurance, barber shop. Some other businesses are involved in distribution of goods such as cargo company, and transport company.

Business Activities

The three types of business activities are

Financing activities
Investing activities
Operating activities

Financing Activities

Financing activities are related to managing funds. There are following two source of funds for business:

Equity: funds collected by selling the shares to investors.
Debt: funds obtained through debts in the form of loan, bond or debenture.

Investing Activities

It starts after financing activities. Investing activities involve the purchase of resources, acquisition and disposal of long-term assets and other investments not included in cash equivalents.

Operating Activities

Once a business generates fund and invests in various assets, it begins to operate. It starts generating revenues through sale of goods and services.

Types of Business Organizations

There are three types of business organization/entities that are widely followed.

Sole Proprietorship

Owned, managed and controlled by single person.
Normally small businesses are run as sole proprietorship.
Sole trader
Proprietor takes the entire profit and bears the entire business risks individually.
Easy to establish and control.
Some examples of sole proprietorship business are barber shop, law firm, tea shop and grocery shop.
Some advantages are simple to establish, tax advantage, Owner controlled, quick decision, no profit sharing, secrecy, incentive to work hard.
Some drawbacks are limitation of capital, unlimited liability and lack of proper control, narrow scope etc.

Partnership Business

Owned by two or more persons,
Sharing of benefits as well as combining their financial, managerial and technical resources.
Partners make as partnership deed i.e. a written agreement in partnership business.
It is also simple to establish.
Examples of such businesses are nursing home, department store and public accounting firm.
Some advantages are easy to establish, shared control, tax advantages, and boarder skills and resources.
Some Disadvantage are unlimited liability, chances of misunderstanding among the partners, and lack of perpetual existence.

Corporate Company

Owned by large number of shareholders/stockholders.
An investor receives shares of capital/stock to indicate his ownership claim.
The share of stocks is easily transferable which attracts the people to invest in a company that helps a company to raise its funds easily.
The liability of each shareholder is limited up to the investment held by him/her.
Provides greatest financial protection to the owners.
Companies pay tax on their profit.
There are representatives of shareholders like Board of Directors (BOD).
It is established by laws and can be dissolved only by law.
Some advantages are: Huge capital, Limited liability, Efficient management, share transferability, perpetual existence and public trust.
Some Drawbacks are: Difficult in formation, Delay in decision making, Lack of secrecy and excessive legal provisions.