Forms and Types of businesses: Discussed

The number of people who want to try and take the risk of putting up a business is increasing especially in times of pandemics. Although this is good news because it creates more job opportunities for others who can’t engage themselves in business. Moreover, this can also help to increase the country’s economy but the fact that businesses are risky and somewhat difficult to manage more especially nowadays where there are already established companies in the same industries that someone might want to create a business with.

The best way to overcome obstacles and soon become a successful businessman/woman is to simply acquire knowledge about the business world. It might take you some time to understand everything about business but knowing the basics is the only thing you need, you can just learn the rest through experiences. For this article, I would like to tackle the forms and types of business.

You might be wondering why some well-established companies have the surname “corp.” or “inc.” these surnames will be discussed later.

Types of business

Although businesses have a common goal: to generate and earn a profit, we should still identify the differences between their types so that it would be easy for us to start one in the future. The following are the three types of business; please note that in some journals these are also called “types of business according to activities”

·         Service business - this type of business offers services to generate income. It utilizes human resources to provide intangible products/services to customers such as barbershops, salons, spas, etc. The advantage of service type of business is that we don’t need to account for inventories, and the owner doesn’t need to have a large place or area to start this type of business. However, regular training of human resources and monitoring of their performance is a must, motivation and regular compensation for motivation of your employees are needed so the business becomes more productive, and this might lead to the further acquisition of costs and affect your profit.

·         Merchandising business – examples of this type are supermarkets, grocery stores, convenience stores, and sari-sari stores. While service businesses utilize intangible products, this type uses tangible products usually bought from suppliers and resell with markup to the consumers.

·         Manufacturing business – manufacturing businesses buy products that will be used as raw materials to produce new products. For instance, AB-Pea Company is a company that produces or manufactures peanut butter. The company’s raw materials are peanuts and other ingredients that are essential in making the butter. In addition, Labor cost, and overhead cost including facility cost are included in the computation of the total cost so that the owner can decide on the price without acquiring loss. To put it simply, think about a vendor who makes banana chips. The vendor transforms raw bananas into chips and sells them. This is what you call manufacturing because you processed the products into a new one.

Forms of business and the advantages/disadvantages of each form

Note that in other journals it is also called “forms of business according to ownership”

Sole proprietorship

·         A sole proprietorship is a form of business that has only one single owner. The advantage of being a sole proprietor is that the owner owns all the decisions within the company, establishing or creating such a business form is also easy so long as you can fund your idea and have the available market you can already create one simple business. Lastly, since you own the business, you also own all the profits. However, since you’re the only owner of the company you’ll have a limited source of funds it would also be difficult to loan because of the high possibility of bankruptcy. Also, all of the liabilities will be shouldered by the owner up to the extent of his/her personal assets.

Partnership

·         Unlike a sole proprietorship, a partnership has multiple owners thus the availability of funds is now an advantage, it is also easy to create so long as contracts between partners are settled including the share or percentage in profit or loss, and of course, management and control will be easy for owners can divide the responsibilities. On the contrary, the settlement of liabilities is extendable up to the owners’ personal assets. Disputes between partners’ decisions might also be a problem. Another thing is that if a partner leaves or dies the partnership can be easily dissolute and soon liquidate.

Corporation

·         A corporation is composed of a group of owners’ “stakeholders”. Unlike the other forms, a corporation is being created separately thus having a separate legal entity and is only created by the intervention of law, because of this the shareholders can only be sued for liabilities up until their shares only and not extending up to their personal assets. They can also enjoy multiple sources of funds. Here, the decisions imposed are based on votes meaning one share is equal to one vote, if you owned the majority of shares then you have a say but if not then sorry for you.

 Note that a corporation is a complex topic thus I can’t fully explain this to you in a single article.

Now for the question of whether there is a difference between “incorporated (Inc.)” and “corporation (Corp.)”, the answer is, they are just the same both of them are just a representation that a company is a separate legal entity, although we have to remember that we cannot use either of these surnames interchangeably thus we cannot say “San Miguel Inc.” or “JF Inc.”