A business is simply defined as an entity or organized act characterized by a single activity for profit. Companies may be sole proprietors, partnership enterprises, corporations, limited liability companies (LLCs), or any other type of business entity recognized by the legal system. Businesses are organized differently in each jurisdiction. However, a business can exist regardless of the form of organization it may be. In Canada, a business can only be deemed to exist when it carries on business either by trading or producing tangible items, including supplies, for profit.
There are many different ways to define and categorize a business. Many businesses have one main activity, such as manufacturing or selling food products, while many others have many activities, such as providing financial services or designing a website. Some businesses are completely offline, while others may be online. A number of businesses are composed of individuals with specialized skills who work from home; these include designers, programmers, and other administrators. A business can have multiple subsidiary or related activities depending on its legal structure.
Most businesses earn profits by providing goods and/or services to customers. Profits are realized at the point of sale. Some businesses also make profits by using their retained assets to acquire new goods or services and capitalizing on future growth by investing in expansion projects. A company can choose to implement two different strategies to maximize profits: they may increase sales and reduce expenses or improve productivity and/or efficiency. All businesses profit from the increased sale prices of their products or services, but some businesses may realize higher profits through expanding their sales outlets or reducing the cost of some services provided by their affiliates.
For most U.S. residents, personal profit and loss must be reported individually for taxation purposes using Schedule C. Corporations and LLCs are treated as individual entities and are therefore subject to the separate taxation of dividends and capital gains. Business owners should understand that corporation tax is paid by the corporation itself and only one shareholder of a corporation may have any opportunity to profit. All shareholders are considered personal persons. Only a single family member may have any opportunity to profit from a corporation, so a C corporation or LLC is treated as if it is a single family unit.
An LLC, also known as a limited liability company, is a separate entity from its owners. Limited liability companies are most often set up as partnerships. Many businesses set up their business as a limited liability company, which permits them to avoid paying taxes on their personal incomes. In some cases, the state law requiring corporate tax is waived when the LLC forms a limited liability company. An LLC might be run by an individual, an estate, or a corporation.
Businesses can have their choice between different types of incorporation. For instance, a sole proprietorship is generally treated as a sole proprietorship in the eyes of the IRS. A partnership will be treated like a partnership in the eyes of the IRS and is thus subject to taxation. However, some partnerships are taxed more heavily than other partnerships, such as C corporations, S corporations, and LLCs. Therefore, businesses should carefully consider which type of corporation best suits their purposes.
Sole proprietorship is a type of business in which there is only one individual who owns and controls the company. Examples include partnerships, LLCs, and corporations. The sole proprietor cannot have any partners, employees, shareholders, or employees. Most sole proprietors will be treated as self-employed individuals.
A C corporation is treated just like a sole proprietor except that it is able to have partners. The C corporation will have to pay taxes on its corporate income like other corporations. However, unlike sole proprietorships, a C corporation may have unlimited partners. A partnership will be able to form one business with other businesses, but will not be able to create several businesses from the same partnership. Most partnerships will only pay taxes on their share of the profits made by the partnership.