Business facts for kids

For other uses, see Business (disambiguation).

A business is like a special club or activity where people work to make money. They do this by making things, selling things, or offering services to others. Think of it as any activity you do to earn a profit!

Sometimes, a business is just one person, and that person is responsible for everything the business does, including any debts. This is different from a big company, like a corporation, which is a separate legal "person" in the eyes of the law. Corporations can protect their owners from being personally responsible for the company's debts.

Types of Businesses

Businesses can be set up in different ways, depending on how many people own them and how they want to manage money and responsibility. Here are some common types:

One-Person Business (Sole Proprietorship)

A sole proprietorship is owned and run by just one person. This person gets all the profits but is also fully responsible for all the business's debts. It's the simplest way to start a business.

Partnering Up (Partnership)

A partnership is a business owned by two or more people. They usually share the profits and the responsibilities. In many partnerships, each owner is responsible for all the business's debts, not just their share.

Big Companies (Corporations)

A corporation is a special type of business that is treated like a separate legal "person." This means the business itself is responsible for its debts, not the owners. Owners of corporations are called shareholders, and their risk is usually limited to the money they invested.
- Some corporations are owned by the government, and others are owned by private people.
- A corporation can be privately held (owned by a small group) or publicly held (its shares can be bought and sold by anyone on a stock exchange).

Working Together (Cooperatives)

A cooperative (or co-op) is a business owned and controlled by its members, who share in the decision-making. Members can be customers, employees, or even other businesses. Co-ops can be set up to make a profit or to serve a community without focusing on profit.

Protecting Owners (Limited Liability Company - LLC)

A Limited Liability Company (LLC) is a business type that protects its owners from being personally responsible for business debts, similar to a corporation. It's often simpler to set up than a corporation.

Buying a Ready-Made Business (Franchise)

A franchise is when someone buys the right to open and run a business using a larger company's name, products, and system. For example, many fast-food restaurants are franchises. The larger company (the franchisor) provides support, and the person running the business (the franchisee) pays fees.

Parent Companies

A parent company is a company that owns enough shares in another company to control its management and operations. The company it controls is called a subsidiary.

What Kinds of Businesses Are There?

Businesses can be grouped into different types based on what they do:

Agriculture: These businesses grow food, raise animals, or harvest natural resources like trees. Think farms, ranches, or logging companies.
Mining: These businesses dig up natural resources from the Earth, like oil, natural gas, metals, or minerals.
Service Businesses: These businesses offer help or skills instead of selling physical products. They charge for their time or services.
- Financial Services: Banks, credit unions, and insurance companies help people manage their money.
- Transportation: Airlines, train companies, and shipping companies move people and goods from one place to another.
- Utilities: These provide essential public services like water, electricity, or waste management. Often, governments run these.
Entertainment and Media: These companies make money from movies, TV shows, music, books, or news. They include film studios, TV networks, and publishers.
- Sports: Sports teams, leagues, and related businesses make money by organizing and promoting sports events and selling sports-related goods.
Manufacturing: These businesses make products, often in factories, from raw materials or parts. Examples include car makers, electronics companies, or clothing factories.
Real Estate: These businesses buy, sell, build, or manage properties like land, homes, and other buildings.
Retailers and Wholesalers: These businesses act as middlemen. Wholesalers buy large amounts of goods from manufacturers and sell them to retailers. Retailers then sell those goods directly to customers in stores or online.

How Businesses Work: Key Activities

Businesses have many different parts that work together to make them successful.

Accounting

Accounting is like the "language of business." It's about keeping track of a business's money: where it comes from, where it goes, and how much is left. Accountants help businesses understand their financial health. The modern way of accounting was developed by an Italian mathematician named Luca Pacioli in 1494.

Commerce

Commerce is simply the process of buying and selling goods and services. It's all about trade!

Finance

Finance is about managing money and investments. For a business, it means making sure there's enough money for daily operations and future plans. It also involves deciding where to invest money to help the business grow and make more profit, while also managing risks.

Human Resources (HR)

Human Resources helps businesses find and support their employees.

Human Resources (HR) is the part of a business that focuses on people. HR teams find, hire, train, and support employees. They help make sure employees are happy and productive, and they also protect the company from problems related to its workforce. HR departments became common in the late 20th century.

Information Technology (IT)

Many businesses have an IT department. This team manages all the computers, networks, and software that a business uses. They make sure technology helps the business run smoothly and efficiently.

Manufacturing

Manufacturing is the process of making products, usually in large amounts, using machines and workers. It's about turning raw materials into finished goods that can be sold.

Marketing

Marketing is how businesses tell people about their products or services and convince them to buy. It includes advertising, setting prices, and understanding what customers want. With the internet, digital marketing has become very important, using websites, social media, and online ads.

Research and Development (R&D)

Research and Development (R&D) is where businesses explore new ideas to create new products or services, or improve existing ones. It's like a science lab for businesses, trying to invent the future!

Safety

Keeping employees safe is very important for businesses. Accidents can be costly. Businesses invest in safety programs and training to prevent injuries, which helps both employees and the company's finances.

Sales

Sales is all about selling products or services to customers. It's a key part of any business because it brings in money and helps the company grow.

Managing a Business

Running a business well is called management. Managers make sure the business uses its money, equipment, and people effectively. They oversee different areas like finance, marketing, and human resources. Owners can manage their own businesses, or they can hire professional managers to do it for them.

How Businesses Are Organized and Regulated

Time required to start a business in 2017

Governments have rules about how businesses can be set up. These rules are part of commercial law.

Some things that affect how a business is organized include:

Size: Smaller businesses are often more flexible. Larger businesses, especially those with many owners, are usually set up as corporations.
Industry and Country: Different types of businesses or businesses in different countries might have different rules.
Taxes: How a business is set up can affect the taxes it pays.
Rules and Information: Some business types need to share more information with the public or follow more rules.

Most businesses operate through a separate legal entity, like a corporation or an LLC. This means the business is legally distinct from its owners. If the business gets into debt, the owners' personal belongings are usually protected.

If two or more people own a business together without setting up a formal entity, they are usually considered a general partnership. If one person owns and runs a business alone, they are a sole proprietor.

Commercial Law

Offices in the Los Angeles Downtown Financial District

There are many laws that affect businesses. These laws cover things like:

How employees are treated, including fair wages, working hours, and safety.
Rules against discrimination based on age, gender, or other factors.
Special licenses needed for certain jobs, like doctors or pilots.
Ongoing rules for specific industries, like banking or airlines.

Raising Money (Capital)

The Mexican Stock Exchange in Mexico City

When businesses need money to grow, they can raise capital. They might sell parts of the business (called shares or securities) to investors.

A big way for companies to raise money is by selling shares to the public for the first time, called an Initial Public Offering (IPO). This means their shares can then be traded on a stock exchange, like the New York Stock Exchange or the London Stock Exchange.
Governments have rules for public companies to make sure they are fair and honest with investors.

Protecting Ideas (Intellectual Property)

Businesses often have valuable ideas, inventions, or brand names that need protection. This is called intellectual property.

Patents protect new inventions.
Copyrights protect original creative works like books, music, or software.
Trademarks protect names, logos, and slogans that identify a business or its products.
Trade secrets are confidential information that gives a business an advantage, like a secret recipe.

Protecting these ideas helps businesses stay profitable and competitive.

Trade Unions

A trade union (or labor union) is an organization of workers who join together to achieve common goals. They work to improve things like pay, benefits, safety, and working conditions for their members. Unions talk with employers on behalf of the workers to negotiate agreements called labor contracts.