A business can be defined simply as any entity or human endeavor that takes place for profit and includes the action of production. The activities involved in business include production, sales, distribution, etc. A business can also be defined as the collective efforts and coordinated actions of people to make and sell products and services for gain. In simple terms a business is any entity that is engaged in business for profit and has a legal status to protect its rights against liabilities.
Businesses are categorized broadly according to the mode of operation. There are mainly three categories of business operations which are primary operation, secondary operations, and tertiary operation. Primary operation includes such activities as manufacture, construction, repair, and marketing of tangible goods. Businesses involved in primary operation are primarily involved in producing, transporting, and marketing of their products to the end users. The other categories of business operations include distribution, retailing, leasing, and financial services.
A business can be either a partnership or a corporation. The term ‘partnership’ refers to a relationship between two or more participants, where there is a partnership agreement in force providing for limited liability and profits. Corporations operate through boards of directors elected by the shareholders, who represent the general public in the determination of the value of the business activity to be conducted and the manner in which it should be conducted and any compensation to the shareholders.
The relationships between businesses are described in the document called ‘orporation’ along with the qualifications and modes of operation of the corporation. A partnership is one of the major forms of corporations. Partnerships are generally considered to be permanent associations. A partnership is established by the parties to the partnership, who mutually agree to operate the partnership in behalf of all the partners individually and jointly. There are certain conditions needed to be fulfilled in order to form a partnership. It is the responsibility of the court to decide whether a partnership is properly established and if it should be dissolved.
Limited Liability Company is another form of corporation. In this type of partnership, one company is usually formed as a ‘sole-proprietor’ to another company, called the ‘active corporation”. The person creating the LSC does not become liable for the liabilities of the other company, called the partnership. The owners of the LSC are treated as passive investors in respect of the partnership and therefore benefit from the partnership’s profits.
A corporation may consist of one or more limited liability partnerships. In such case only the liability of each partner is shared and nothing else is permitted. This type of partnership is taxed as a partnership on its profit, although the income of the partnership is exempt from corporate taxation. All the personal assets of every partner are protected by law and the partnership itself is not liable for the debts of every partner.
A limited liability company is different from general partnerships in the sense that there is no partnership interest being transferred nor any transfer of partnership liability. This means that the partners are separate entities and cannot be held responsible for the debts of each other. The companies enjoy all the tax advantages of corporations and enjoy all the liability protections of personal assets. A creditor of a debtor of an LLC can claim against the LLC but not against the individual owners of the LLCs.
A personal trust is yet another legal entity created for the benefit of the creator of the trust. It is similar to a corporation but has all the tax advantages of a partnership. It is created for the benefit of a single person. This person is generally the creator of the trust and is personally liable for the debts of the trust. This type of trust is legally treated as a separate entity from the creators of the trusts.