What Is the Nature of Business?

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The nature of business refers to the sector or industry to which a company belongs. The nature of business describes what the company does.

The nature of a business includes many components, including the type of services it provides and how it is formed. There are many types of business categories, including voluntary, statutory and private. Statutory companies are those that provide personal care to others. Daycare centers and nursing homes are two examples of statutory companies. Another type of business is voluntary. This group includes charities, nonprofits, community groups and cooperatives. Another broad category is private, which refers to a company that performs services in exchange for other goods and services or money. The nature of business can also include whether or not a business is new or established.

Types of Private Businesses

Within the private sector are several types of businesses. These include service, merchandising, manufacturing and hybrid. A service business is one that provides intangible products, which are products that have no physical presence. This includes professional skills like consulting, counseling, educating and advising. Law firms, psychologists and educational institutions are examples of service businesses. Merchandising businesses are sometimes called "buy and sell" companies. They purchase products at a wholesale price and sell them at a markup rate to consumers. They earn a profit by reselling their products at a higher price than what they paid for. Examples of merchandising businesses include grocery stores and clothing companies. Manufacturing companies purchase raw products with the intent of transforming them into a new type of end product. This distinguishes them from merchandising companies, which buy and sell products in the same shape. Manufacturing companies produce products using a combination of raw goods, a labor force and overhead. Like manufacturing companies, they also produce end products with the intent of distributing them to consumers. Hybrid companies are entities that can fall into several different categories. An example is a company that makes its own pizzas, which would make it a manufacturer, and also sells jars of canned tomato sauce, which would also make it a merchandising company.

Business Structures

In addition to types of services, businesses vary in their organizational structure. They fall into several main categories, which include a sole proprietorship, partnership, cooperative and corporation. A sole proprietorship is formed by one person. This designation indicates that the person performs business activities but does not register those activities as a separate business. He or she combines business assets and liabilities with personal assets and liabilities. A partnership is established by two or more individuals who share the task of putting resources into the company. Partnerships break down further into the two categories of limited partnership, or LP, and limited liability partnership, or LLP. Limited partnerships give unlimited liability but also usually limited control of a company. LLPs protect owners from the actions of other owners so that they don't acquire unfair debt. A limited liability corporation, or an LLC, has characteristics of a corporation and a partnership. It is not incorporated and can take several forms for tax purposes. A cooperative is member-owned and can either be incorporated or unincorporated. A corporation is a business that is legally separated from its owners.