Chapter 3 – Getting Down to Business

Businesses come in diverse types that affect their focus, the way it makes decisions, who it is accountable to and who shares in its outcomes, whether good or bad.

Wikipedia’s simple definition of business is: 

1. An organization involved in commercial, industrial, or professional activity 
2. Where people work together to make and sell products or services 
3. Derived from the word busy, meaning doing things on a regular basis 

While the four main types of businesses exist throughout the world, we focus our discussion on the United States. We look at sole proprietorships, partnerships, corporations and limited liability companies to gain an appreciation for how the type of an entity impacts how a business behaves and the choices it makes.  

Businesses in the U.S. are registered and held at the state level.  While there is a general view of business among all 50 states, each state has its laws and requirements on business operations.  These laws and requirements often reflect the unique context of each state, its resources and focus for its citizens.  Some states are more focused on bringing business into the state, while others might want to attract specific kinds of companies.  

Each business is responsible for understanding the laws and requirements for the state where it is registered and operates.  When looking where to locate, larger enterprises often pick the state that is interested in what the business has to offer and possibly give them tax incentives to locate there.  This is part of economic development in a locale or region.

Types of Businesses

A business structure tells us several things about the business, such as

• the people involved in the business,
• who provides its focus,
• who makes decisions,
• how easy it is to set or “go into” that type of business structure, and
• who is held accountable for the business’s debts and liabilities?

As you read the flashcards on the four types of business structures below, which structure  

• has the most people involved in setting the business focus,
• can make decisions the quickest, and 
• takes the best characteristics from a partnership and a corporation?

Click on the flashcard image for more information.  Click on the arrow to advance to the next card.

Sole proprietorships:

Are businesses owned and run by one person, focus on the owner’s interests,decision-making rests with the owner,are easy to form, requiring minimal capital(funds),are not a legal entity themselves, so the owner is personally liable (responsible) for the business debt (financial obligations), may use the abbreviation Doing- Business As (DBA), such as J. Smith DBA (business name), in the name of the company.

Partnerships

Are owned by two or more people, focus is on an agreed-upon, shared interest of the partners,decision-making rests with the partners or a partner(s) appointee,require limited capital (funds) to start, requiring only a signed agreement, are not separate legal entities from the partners, so partners are personally liable (responsible) for business debts (financial obligations),may use Company (Co.) in the business name.

Corporations

Must have directors, officers and shareholders. While some states allow one person to assume all these roles, most corporations have three distinct groups of people with business knowledge and expertise serving in these capacities.can be a for-profit business that exists to generate income or nonprofit (not-for-profit) business that exists to serve a humanitarian or benevolent need, in for-profits, shareholders who own stock in the company are its owners. Shareholders elect directors (Board of Directors/Trustees) who lead the corporation. The Board then appoints officers (President, Treasurer, Secretary, etc.) who run the corporation.in a not-for-profit corporation, there is no stock or shareholders. Founders establish the entity and usually appoint a Board of Directors/Trustees to lead the business. The Board then appoints officers to run the not-for-profit.focus on the purpose statement found in the required Articles of Incorporation. Directors and officers, informed by stakeholder input, fulfill this purpose. Some states do not require Articles for not-for-profit corporations.in a for-profit corporation, funding comes from shareholders with the expectation that their share of investment increase in value and gives a return on investment. In a not-for-profit, funds come from donations and sometimes, grants with the expectation the funds be used to improve the target of the humanitarizn or benevelont need.are separate, independent legal entities from its owners. Legally, the corporation is viewed essentially as a person. It can sue and be sued. It lives on perpetually until it is dissolved.may use Company (Co.), Corporation (Corp.), Limited(Ltd.), Incorporated(Inc.) in its business name. Not-for-profit can be called a 501 (c)(3) which is the US. Internal Revenue Service(IRS) code that defines a not-for-profit corporation that has filed for a tax exemption. However, this reference is usually not used in its name.

Limited liability companies

combine a corporation with a partnership or sole proprietorship, usually set up for a specific time frame. Company members can be individuals, corporations, foreigners and foreign entities, and even other limited liability companies. They come together for a particular purpose. the purpose of the company rests in the Articles of Incorporation. An operating agreement often accompanies the filing and describes how the company is to be run and managed.are run by members of the company or someone they appoint.often receive assets which may include cash, from the members that formed the limited liability company. They also use bank loans and/or grants.are easier to set up legally than a corporation. Like a corporation, owners of the company are not held personally liable for the companies debt and liabilities but have the advantage of being taxed as a sole proprietorship or partnership, generally use Limited Liability Company(LLC) in the name of the business.

If you answered the questions above as

• The corporation has the most input on business focus because it gets feedback from Board Members, Officers and shareholders. 
• The sole proprietorship makes decisions the quickest. The owner makes the decisions.
• The limited liability company takes the best characteristics from a partnership and a corporation. It limits owner liability because its owners are not held personally liable for the business’s liabilities.

You get a big CONGRATULATIONS!

Pulling It All Together 

Now that we have the type of business, we can begin to pull it all together in a visual diagram of the business referred to as an organizational chart.  All businesses have certain business functions to perform so the business to operate successfully.  These functions include

• accounting and finance to manage financial information, 
• human resources to handle activities related to employees,
• legal to focus on what is allowable or enforceable by law,
• marketing to identify and bring successful products and services to the marketplace,  and 
• operations to transform resources into the desired products and services.

Depending on the type of business structure and size, these functions may have formal areas within the business to perform each specific function. In other companies, one position handles several functions or elements of a function. Looking at a sample of how the organizational chart might look for a sole proprietorship, partnership, for-profit corporation and not-for-profit corporation, we see how type and functions provide the framework for an organizational chart.

Where is strategic communication?

As we end Chapter 3, you are asking, “So, where is communication in the business?” Look at all the rectangles in the organizational charts above, whenever a “rectangle talks” to another “rectangle” or “talks” to the external marketplace, a communication professional may be involved.  Communication between the rectangles is internal communication, while communication with the external market is external communication.  The lines of communication form the organizational charts.   Communication is the function that makes a business work in its business environment.  The Making It Work module covers the strategic communication function.

Congratulations!

You have completed the economics module.  Thank you for joining the discussion.  If you have any follow-up questions, please feel free to contact Mary Hills, IABC Fellow, FRSA, ABC, Six Sigma at [email protected], +1.219.613.8591.