TYPE AND FORM

OF BUSINESS
 What is business entity ?
A business entity is an organization that uses economic
resources to provide goods or services to customers in
exchange for money or other goods and services.
Business organizations come in different types and in
different forms of ownership.

How many type and form of Business ?

3 TYPES OF BUSINESS
 THREE TYPES OF BUSINESS

1. Service Business:
A service type business provides intangible products (products with no physical
form). Service type firms offer skills, labor, expertise, and other similar work in
return for professional or talent fees.

2. Merchandising Business
This type of business buys products at wholesale price and sells the same at retail price.
They are known as "buy and sell" or "reseller" businesses. They make profit by selling
their goods at prices higher than their purchase costs.
A merchandising business buys a product and sells it without changing its form. Examples
include all distribution and retail stores such as: department store, grocery, hardware,
clothes and accessories shop, consumer electronics, home furniture, appliance stores, drug
stores, etc.

3. Manufacturing Business
Unlike a merchandising business, a manufacturing business buys products with the
intention of using them as raw materials to make a new product. Thus, there is
transformation of the products purchased.
A manufacturing business combines raw materials, labor, and overhead costs in its
production process. The goods produced are then be sold to customers.
Here are some examples type of Business
Examples of service businesses are:
• Business services, such as accounting, advisory, taxation, advertising, engineering, legal, research
agencies, computer programming, etc.
• Personal services, such as laundry, beauty salon, photography
• Automotive repairs, car rental, car wash, parking spaces
• Fitness facilities, amusement parks, bowling centers, golf courses, theatres
• Hospitals and clinics, schools, museums, banks
• Hotel and lodging, and more.

Examples Manufacturing Business include:

• Food processing, such as producing canned meat, frozen goods, dairy products, bottled
drinks, also bakeries and oil mills
• Fabric mills and textile production from cotton, wool, polyester; and also clothing
factories that use textile as raw material
• Wood and metal works, such as in building cabinets, tables, chairs
• Oil refineries, chemical labs, plastic and rubber production
• Ship builders, aircraft manufacturers, car makers
• and many other producers and factories
Types of business
organization
What type of business should you
start?

One of the first challenges new entrepreneurs face is

deciding what type of business they should register.
Although there are several different types of
businesses, choosing one doesn't need to be difficult.
Here are the seven most commonly-used business
types and some questions to help you pick which
business type is right for your startup:
1. Sole Proprietorship: The simplest type of business. Sole proprietorships are owned and
operated by a single person and are very easy to set up.

2. Partnership: A business owned by two or more people who share responsibilities and profits.

3. Limited Partnership: A business partnership, often between business operators and

investors.

4. Corporation: A type of fully-independent business with shareholders. One of the most

complex business types.

5. Limited Liability Company (LLC): A mixture of a partnership and a corporation, designed to

make it easier to start small businesses. One of the most popular business types for startups.

6. Nonprofit Organization: A type of business that uses its profits for charitable purposes. Tax-
exempt, but must follow special rules.

7. Cooperative (Co-op): A business owned and operated for the benefit of the members of the
organization that use its services.
 Types of business
organization
Once you have established
what kind of business you
plan to run, you can
choose the form of
business organization and
ownership that works best
for your goals.
1. The sole proprietorship form is usually
adopted by small business entities.
Advantages of sole proprietorship:
• easy to set up
• owner has full control over business decisions
Disadvantages of sole proprietorship:
• no independent legal status, owner is liable for the
liabilities of the business
• limited source of funds
2. Partnership
A partnership is owned by two or more persons who contribute capital to
conduct business. The partners divide the profits of the business among
themselves based on agreed terms.
In general partnerships, all partners are have unlimited liability. In limited
partnership (or Limited Liability Partnership, LLC), at least one partner is a
limited partner. The creditors cannot go after personal assets of limited
partners.

Advantages of partnership:
• more source of capital, resources, knowledge and skills from more people
versus in a sole proprietorship
• easier to set up, manage, and control compared to a corporation
Disadvantages of partnership:
• no independent legal status, and general partners can be liable for the
liabilities of the business
• possibility of disagreements between partners
• limited source of capital and restrained growth potential compared to a
corporation
3. Corporation

A corporation is a business organization that has a separate legal personality

from its owners. Ownership in a stock corporation is represented by shares of
stock.
The owners, known as stockholders, enjoy limited liability but have limited
involvement in the company's operations. The board of directors elected from
the stockholders, controls the activities and direction of the corporation.

Advantages of corporation:
• prestige from passing more formal requirements
• shareholders' enjoy limited liability since the company is an independent legal
entity separate from its owners
• extensive sources of capital though issuance of stocks and bonds, and with it
an amplified growth potential
• ownership can be easily transferred through stocks, hence allowing
corporations unlimited life, compared to partnership that gets dissolved when
any of the partners decides to leave, dies, or becomes incapable to fulfill role
Disadvantages of corporation:

• more difficult to set-up and manage due to greate

requirements and heavier government scrutiny
• stockholders of big corporations have limited involvemen
in business operations and decisions
• double taxation, taxes are charged on the company's ne
income and stockholders are also taxed on dividends
received from the company
OTHER FORMS OF BUSINESSES

In addition to these basic forms of

business ownership, these are some
other types of organizations that are
common today:
 Cooperative
A cooperative is a business organization owned by
a group of individuals and is operated for their
mutual benefit.
The persons making up the group are
called members. Cooperatives may be
incorporated or unincorporated.
Some examples of cooperatives are: utility
cooperatives (water and electricity), cooperative
banking, credit unions, and housing cooperatives.
 Limited Liability Company (LLC)
Limited liability companies (LLCs) in the USA, are hybrid
forms of business that have characteristics of both a
corporation and a partnership or sole proprietorship. An
LLC is easier to establish. It is not incorporated; hence, it
is not considered a corporation. However, the owner/s
enjoy limited liability like in a corporation.

An LLC may choose to be taxed like a sole proprietorship

or partnership (flow-through taxation, where the company
is not taxed and income is only taxed in the owners' tax
returns) or like a corporation. By default, an LLC is taxed
through flow-through taxation.
 What about S Corporation?

An "S Corporation" is not really a type or form of

business entity, rather it is a tax classification in
the US.
This classification allows income to pass-through
to the owners like in a partnership.
In effect, the business is not taxed; instead, taxes
are charged in the tax returns of the owners.
In contrast, a "C Corporation" is a business that is
taxed separately from its owners.
CONCLUSSION :
Main types of businesses:
• Service - intangible products
• Merchandising - buy and sell goods
• Manufacturing - transforms raw materials into a new
product
Basic forms of business organizations:
• Sole proprietorship - owned and controlled by only one
person
• Partnership - owned by partners who agree to do business
• Corporation - a legal entity owned by shareholders
Other forms that also exist are: LLCs and cooperatives.