Business 101: Definition, Types, and Examples
A business is an organization that provides goods or services to customers in exchange for money. Businesses exist to earn profits for their owners. There are over 33.2 million small businesses in the United States as of 2022.
Definition of a Business
A business is defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities. The purpose of a business is to organize economic production of goods or services. Businesses range in scale from sole proprietorships to large international corporations.
Types of Businesses
The four main types of businesses are:
- Sole proprietorships
- Partnerships
- Limited liability companies (LLCs)
- Corporations
Sole Proprietorships
A sole proprietorship is an unincorporated business owned and operated by a single individual. 73.1% of small businesses are sole proprietorships. Sole proprietorships are the simplest and most common structure to start a business. The owner has complete control but unlimited personal liability for business debts.
Partnerships
A partnership is a business owned by two or more people who share responsibilities and profits. 5.9% of small businesses are partnerships. Types of partnerships include:
- General partnerships
- Limited partnerships (LP)
- Limited liability partnerships (LLP)
In general partnerships, partners share equal rights and responsibilities. Limited partnerships have both general and limited partners.
Limited Liability Companies (LLCs)
A limited liability company (LLC) combines features of partnerships and corporations. 14.1% of small businesses are LLCs. LLCs provide limited personal liability protection to owners like corporations. But LLCs have fewer corporate formalities and recordkeeping requirements than corporations.
Corporations
A corporation is an independent legal entity owned by shareholders. 5.6% of small businesses are corporations. Types of corporations include:
- C corporations
- S corporations
- Nonprofit corporations
- Benefit corporations
Corporations provide limited liability protection to owners. But they require more extensive recordkeeping, reporting, and tax obligations than other structures.
Examples of Businesses
Some examples of small businesses include:
- Sole proprietorship examples:
- Freelance writer
- Graphic designer
- Tutor
- Consultant
- Handyman
- Partnership examples:
- Law firm
- Accounting firm
- Real estate agency
- Medical practice
- LLC examples:
- Restaurants
- Retail stores
- Construction companies
- Landscaping services
- Corporation examples:
- Technology startups
- Manufacturing companies
- Financial institutions
- Healthcare organizations
Service-based businesses make up 70.9% of small businesses, while 14.7% are in retail and 7.7% are in construction. Some specific service business examples are:
- Athletic training
- Housekeeping
- Business consulting
- Maintenance services
- Graphic design
- Photography
- Catering
- Accounting
- Landscaping
- Hairstyling
Conclusion
In summary, a business is an organization that sells goods or services for profit. The main types of business structures in the U.S. are sole proprietorships, partnerships, LLCs, and corporations. Each has different characteristics regarding ownership, liability, taxes, and formalities. Small businesses span many industries, with services being the most common type. Understanding the fundamentals of business is essential for entrepreneurs looking to start or grow their own company.