Business is the act of earning money or creating and selling goods. Simply stated, it is any activity or venture entered into to earn a profit. To engage in business, one must have the legal right to engage in business. This means that the owner or borrower has the exclusive right to engage in business and the only way to acquire such a right is to acquire legal authority over the transaction.
In most countries, there are two general types of entities that enjoy the legal rights to engage in business: the individual who owns the product or the person who has created the product or the creative team that is responsible for its creation. The idea behind business ownership is that profits should be shared among the parties involved. Businesses thus thrive on making profits for all the parties involved. Many business strategies ensure profitability and these include creating a brand image, expanding geographically, diversifying the product range, improving the customer experience, and maintaining quality.
Creating a profit for a company means that there should be increased production, reduced costs, and higher margins. These profits are then shared between the owners of the corporation and the shareholders. Business profits are different from personal profits because they are meant to support the needs of the company as well as the expansion of the business itself. Personal profits are usually seen to not correlate with the success of a business. Thus, when a business is in trouble, shareholders will generally bear the brunt of the financial burden.
Limited liability companies (LLC’s) offer businesses the ability to create greater profitability by sharing limited liability. Limited liability companies are also known as “pass-through” corporations since the liability of the corporation is reduced while the assets of the corporation are protected. This means that a corporation is not considered a direct pass-through entity (which means that the liability of the shareholders is not reduced), but rather the profits are passed through a second party into the hands of the shareholders. This protection ensures that the company’s assets do not become depleted and its value is not decreased. However, an important drawback to an LLC is that it only allows limited liability. This means that if the corporation is found to have committed fraud or other fraudulent activity, the shareholders will be able to bring legal action against the LLC.
The ability for businesses to increase their profits is highly dependent on the creation of shareholder value. This is the concept that the equity (investment) of a corporation is directly proportional to the value of the stock or equity ownership of that corporation. However, this can often be difficult to accomplish in Europe, as the corporate code in Europe tends to favor labor over capital. This is why most European businesses that wish to increase their shareholder value must first create a highly profitable business model, employ labor (efficient and educated workers) that are also paid a decent wage and provide excellent benefits, and then must attract consumers by offering a competitive price to their products and services.
Europeans tend to view corporations and sole proprietors very differently, and therefore many businesses fail to realize the importance of having an entity engaged in trade. In a sole proprietor or corporation, the individual owners are called the “benefits” or “owners”. A sole proprietor is considered to be self-employed and therefore receives no Social Security benefits. A corporation is generally viewed as a separate entity from its owner, which protects the benefits of the shareholders, but creates more restrictions on the management of the corporation.
Many different types of businesses exist in Europe. An example of this would be the restaurant. There are large chains of hotels, restaurants, bars, and pubs owned by one person, the owner. These businesses may be sole proprietorships or may be partially owned by other people. Bar and pub owners are typically classified as having limited liability companies, or LLCs, and sole proprietors as being self-employed persons.
Small business ownership has become more popular in recent years as a way to obtain financing for start-up and expansion. Business loans can be obtained from banks and other lending institutions at affordable interest rates. Larger banks often prefer to finance new businesses through a sole proprietorship, or LLC, because they are not required to include the profits of the business in their credit portfolios. For banks, the risks associated with business ownership are minimal, especially compared to the risk of a borrower defaulting on a loan. For many small businesses, obtaining a business loan from a bank requires only a simple application, which is approved promptly, and the business owner can enjoy the benefits of a lower interest rate than would be possible without such funding.