In the legal field, the definition of a business can be very broad and complex. Generally, a business is defined as any type of enterprise or company that is engaged in business, commercial, or administrative activities for profit. Businesses may be sole proprietorships, partnership, corporations, LLCs (for corporations), C corporations, and other types of businesses. Non-profit organizations may also engage in business as well as nonprofit charities.
A business organization may be engaged in any of the following five basic business activities: producing, selling, providing, or supplying goods and services, earning revenue, managing resources, and marketing and advertising products. A company may participate in the production, transportation, processing, and marketing of goods and services. Profits and losses are calculated using the cost of good sold, costs of production, and prices paid for products. Assets include financial investments and liabilities including fixed assets and liabilities capitalized. The scope of business activities and the amount of resources available to manage them may be different from one organization to another.
Producing refers to the process by which goods are produced. Common goods produced by businesses include finished goods, supplies, capital goods, and machines used to carry on the processes of production. Selling refers to the process by which customers purchase the goods produced. Common selling practices include retail sale, direct sales, and purchases by consumers. Capital goods include accounts receivable and inventory, fixed assets such as machinery, and investments including accounts payable and inventory capitalization.
Business enterprises can be classified according to two broad categories: private businesses and public businesses. Private businesses are those in which profits are earned only by owners or through the use of their personal assets. Examples include partnerships, sole proprietor, LLCs, and nonprofit organizations. Public businesses are national organizations that have been registered with the Department of Commerce and can legally function as a for-profit business.
Many kinds of partnerships exist between individuals. A partnership occurs when two or more people form a company or establish a limited liability partnership to own and operate a business together. A sole proprietorship is when one person owns and controls the entire business. A corporation is any business entity that exists solely for the benefit of the corporate family members. In order to succeed, a business needs to have the characteristics of both a partnership and a corporation.
A business can adopt several strategies to separate itself from competitors. In addition to registering its business name as a corporation, many types of partnerships and corporations also set up a shield or recess, which prevents them from being sued personally by other individuals or entities. Businesses can also elect to be treated as a partnership for tax purposes. However, the IRS retains the ultimate authority to determine which classification best fits a particular business’s income and assets.