Business Characteristics & Examples | What is a Business? – Video & Lesson Transcript | Study.com

Characteristics of Business

In order to be classified as a business, an organization must exhibit certain characteristics of business and perform certain tasks. What is the definition of characteristics? Some of these characteristics include economic activity, buying and selling, continuous process, profit motive, risk and uncertainties, creative and dynamic, customer satisfaction, social activity, and government control.

Economic Activity

Businesses perform the economic activities of producing goods and services and making them available to consumers. These activities also support the economy through job creation, as well as industrial and economic development.

Buying and Selling

Businesses participate in the buying and selling of products in order to make a profit. Examples of things they may buy include raw materials to repurpose, machinery for production, and property to conduct their business. Businesses sell the finished products made from raw materials and machinery to retailers, or directly to consumers. If the business provides services to consumers, they may sell them directly or through another company.

Continuous Process

To be considered a business, an entity must engage in regular transactions to achieve an ongoing profit flow. The process of producing and distributing goods and services is continuous and involves frequent strategizing to increase the business’s profitability.

Profit Motive

The success or failure of a business is determined by its profitability. Businesses are centered on achieving the highest profit level possible by producing and selling goods and services. Higher profits enable a business to grow economically and expand its goals.

Risk and Uncertainties

Every business should continuously take account of their possible insurable and non-insurable risks, which are the effects of uncertainty on the business’s goals. Non-insurable risks are unpredictable, so risk preparedness can keep a business from suffering due to surprise obstacles.

Creative and Dynamic

Due to the competitive nature among businesses in the same industry, it is important for them to develop creative ways to sell their goods and services to consumers. The dynamics of the business may evolve overtime as consumer needs change to stay profitable.

Customer Satisfaction

Profit is a business’s main goal and can only be achieved if customers buy the goods and service they sell. Successful businesses constantly monitor customer satisfaction and adjust things like price or quality as needed. Satisfied customers become regular customers, and often produce more customers through word of mouth.

Social Activity

Businesses and society depend on each other, and businesses should be considered socially responsible. Their goal should be to meet societal needs by providing goods and services that people need and want to buy. In turn, various social groups help a business survive, such as employees, customers, investors, and suppliers.

Government Control

All businesses have to adhere to government regulations and function under a certain level of control. This is to make sure that the business functions ethically, sells products and services that benefit society, and interact with customers and employees fairly.

Example of Business

There many examples of business among various industries, some more well-known than others. Walmart and Coca Cola are two popular businesses with stores and distribution centers all over the world. Coca Cola functions mainly as a manufacturing business by producing products for other companies to sell. Walmart manufactures products, sells products, and provides services to consumers, essentially functioning as all three types of business simultaneously. Small and privately-owned organizations are examples of business as well, such as accounting firms (service) and local grocery stores (manufacturing and/ or retail).

What are the classifications of business?

Businesses care classified based on their type of ownership and what industry they operate in. Different levels of ownership are associated with a varying levels of liability. Businesses are classified within certain industries to identify their goals and competitors.

Forms of Business

Businesses are classified under one of these forms: sole-proprietorship, partnership, corporation, cooperative, limited liability company, franchise, company limited by guarantee, company limited by shares, unlimited corporation, charter corporation, or statutory corporation.

• Sole Proprietorship: the business is owned by only one person who maintains all liability
• Partnership: the business is owned by two or more people who have limited liability and split the profits
• Corporation: the business is owned by stockholders who have limited liability and limited involvement
• Cooperative: the business is owned by a group of people who work together for mutual benefit
• Limited Liability Company: the business is owned by one or more people who have limited liability, and can be taxed like a sole-proprietorship or partnership
• Franchise: the franchisor is the original owner who sells use of their business idea to the franchisee
• Company limited by guarantee: the business is owned by guarantors who agree to pay a certain amount of the business’ debts
• Company limited by shares: the business’ capital is limited based on how much they owe to the shareholders
• Unlimited Company: members and shareholders are free from liability as long as the business remains in operation, but are liable for any outstanding debts upon liquidation
• Charter Corporation: the business files a corporate charter document with the Secretary of State outlining how it is structured and governed, as well as its operations and objectives
• Statutory Company: the business is created through the government to provide valuable services to the community

Industry Classification of Business

Businesses are classified based on the industry in which they operate. They are generally classified as a business of agriculture, finance, entertainment, industrial manufacturing, real estate, retail, transportation, sports, or utilities.

• Agricultural: focuses on the production of raw and natural materials
• Financial Services: manages personal or corporate finances
• Entertainment: provide entertainment services to consumers
• Industrial Manufacturers: produces industrial products from component parts or raw materials
• Real Estate: focus on developing, renting, and selling properties
• Retailer: receives products from manufacturers and sells them to customers
• Transportation: provides transportation services to customers
• Sports: provides sporting equipment and/ or activities to customers
• Utilities: provide public utility services to customers

Examples of Business Regulations

Businesses are required to adhere to certain regulations set by the government to ensure legal, fair, and safe business practices. Owners are required to follow current commercial laws, accurately keep track of capital, protect intellectual property, and navigate responses to trade unions as needed.

Commercial Law

Commercial law regulates the conduct of businesses that provide goods and services to the public. These laws oversee things like consumer complaints, contract violations, advertising and marketing disputes, and issues with unfair competition.

Capital

Business are required to calculate the funding they need in order to achieve profitability. This can include taking an inventory of cash-on-hand, investment account balances, as well as access to loans or lines of credit should they need additional funding.

Intellectual Property

Each business is responsible for protecting their intellectual property, which consists of their unique ideas, logos, slogans, and technologies etc. that identify them and help them operate. Protecting intellectual property through means of copyrights, trademarks, patents, and trade secrets helps them maintain a competitive advantage in the industry.

Trade Union

Trade unions are organizations that help to protect employee rights and work in the best interests of it’s members. Businesses should always maintain fair and ethical practices in the workplace to ensure employee satisfaction. Unsatisfied and mistreated employees often seek the support of trade unions to hold businesses accountable.

Lesson Summary

Businesses are made up of individuals working together to meet society’s needs, as well as common goals. They are focused on producing items or services to sell, meeting a particular need for society, and are mainly centered with profit. They are classified based on their unique characteristics, their type of ownership, and what type of industry they operate in. Some well-known professors of business include Jack Kapoor, William Pride, and Robert Hughes.

Examples of businesses include Cocoa Cola and Walmart, as well as smaller private businesses such as an accounting firm or a local grocery store. No matter what type of business is being managed, adhering to government regulations regarding commercial law, capital, intellectual property, and trade unions should be prioritized. They should also monitor insurable and non-insurable risks regularly to stay ahead of any possible obstacles that may arise. While profit is the ultimate goal of a business, their overall success is dependent on many factors.