In any organization, there is a business or a company that makes up the core group or the organisation. A company is a business where people work collectively for a common purpose. A company is a joint-venture or co-operative business in which there are many partners or shareholders. In a company, workers cooperate to create and sell, or provide services or goods to others. Others then purchase the services and products of the company.
Business or enterprises that make up these types of organisations exist for one reason only – to make profits. Every business model starts with the idea to make profits. Profit is the sole purpose of businesses as they realise that without it there can be no business – no profit.
Every business has a single entity. This entity is the entity that generates the profits for the business. It is important to note that in most cases, the word ‘entities’ does not mean humans as in the case of a corporation or a partnership. Corporations, partnerships, sole proprietor, limited liability company (LLC), company limited by guarantee, etc are just some of the generic terms used to describe the entities of businesses. Other common entities in businesses are customers, suppliers, staff, property and assets.
Many businesses have several entities; for example a partnership may have other corporations, partnerships, sole proprietorships and LLCs. Partnerships are formed for different reasons. Some partnerships are formed to carry on the activities and projects of one partner; others to protect and promote the interests of other partners; others to reduce overall costs and increase efficiency in the operations of the business; while others may be formed to form a legal entity. Partnerships can also be formed to increase the productivity of the business and/or to protect and grow the opportunities available to partners.
The only common characteristic of all corporate entities is that they are created by a legal entity. The structure of the corporation is established by statute or by a Charter, which gives the general characteristics of a corporation, such as majority ownership, limited liability, etc. However, some characteristics of a corporation are unique to them. For example, in a partnership, partners generally own the partnership interest but not all of the partners are owners of the partnership interest.
Another characteristic of a business entity is its product or service. A firm must produce goods or services to earn profits. Producing goods or services requires investment in equipment, labor, supplies and technology. To be able to earn profits, the firm must sell or deliver its products or services to customers. These services or goods may come in the form of tangible items such as commodities, services, buildings or supplies and intangible personal property such as intellectual property.