A business is clearly defined as an entity organized either for profit commercial, or non-business activities. Businesses may be either for-profit or non-profitable entities that conduct non-commercial activities to meet a social cause or further a personal noble cause. There are many other types of organizations that fall under the category of a business. In fact, the word “business” refers to the activities of all organizations of people, not just businesses. As you learn about the different kinds of organizations that make up the business world, you will likely come across other types that may not immediately jump out at you. Learning about the different types of organizations and what they do will give you a deeper appreciation for how to run your own business so that it makes a profit and offers excellent service to the public.
When it comes to learning about how to run a business, there are five critical key points to consider. One, there is the need for a legal entity. Two, these entities need to have an effective management team. Three, a Board of Directors will ensure that the shareholders receive fair treatment. Four, these shareholders must have the necessary commitment to serve as officers and manage the firm.
A partnership is an example of a company with two or more owners. Partnerships exist for different reasons and include limited liability partnerships (LLPs), public limited liability partnerships (PLLs) and partnerships. A limited liability partnership is an agreement between an entity and one or more private shareholders who have no ownership interest in the partnership’s assets or profits. Public limited liability partnerships (LLPs) allow limited liability but give rise to one-time payments to the partners by the taxpayer, while a PLL is a hybrid entity that combines the benefits of a traditional partnership and the advantages of a corporation. The last provides the best protection for both the corporation and the partners if the business turns out to be successful.
To protect the partnership’s equity and prevent bankruptcies of the partners, a Proprietorship will need to create an operating agreement. The agreement details the partnership’s debts, capital assets, partners’ share of profits, management procedures and control of the business. The agreement may also detail the partners’ authority to make payments directly to creditors or to use their own reputations in promoting the business and its products or services. There may also be a provision allowing the partners to set the price and determine the method by which profits are shared among the partners.
Once the partners are sure that their share of the profits will be adequate to pay off debts, they can begin planning how to increase overall profits. This involves creating a marketing plan, setting firm prices, determining which products and services to promote, developing a competitive marketing plan, evaluating the marketing plan, and eventually implementing a profit maximization strategy. The primary objective of this strategy is to maximize the firm’s profit at the highest possible level. Once profit maximization is achieved, a firm can turn its attention to increasing its total revenue.
The promotion of goods and services is also an important strategy for maximizing profits. For instance, a firm that develops software will need to promote its goods and services in order to fully exploit their potential. The costs that go into developing new software may be recovered through the increased sales of existing software and the resulting profits from selling licensing rights. Similarly, once a firm has sold its products and developed new software, it must focus on how to promote its goods and services so that they can sell themselves to customers and generate additional revenue.
Finally, entrepreneurs can use their business structure to raise money for projects and purposes. Two common ways to raise money are to use their personal assets and to borrow money from investors. A sole proprietorship can operate in much the same way as a sole proprietor when it comes to raising money. A sole proprietorship’s only assets are its business structure and its investment portfolio. When the sole proprietor borrows money from investors or uses its personal assets for financing its activities, it is creating a debt and creating a liability for its owners.
On the other hand, a partnership is an entity that combines the assets and liabilities of two people or entities. Therefore, it is not entirely owned by any one person. A partnership is run by a board of directors, who set the day-to-day and year-to-year goals and objectives of the partnership. As a result, a partnership will tend to generate lower profits, but it generally runs more smoothly than a sole proprietorship and can continue earning profits even during recessions.