Purpose and Structure of a Business

SECTION 1: UNDERSTANDING THE PURPOSE OF A BUSINESS

A business is a commercial enterprise that generates profit by providing goods or services to customers.
The primary purpose of a business is to create value for its stakeholders, including the owners, employees, and customers.
Different businesses will have different purposes, such as making a profit, satisfying customer needs, or achieving social and environmental goals.

SECTION 2: THE STRUCTURE OF A BUSINESS

The structure of a business refers to how it organises its operations, delineates roles and responsibilities, and manages processes and communication.
At the simplest level, business structures fall into three categories: sole trader, partnership, and limited company.
A sole trader operates a business as an individual entity, retaining all profits and bearing all risks.
A partnership is a shared venture between two or more individuals, splitting profits, risks, and responsibilities.
A limited company is a separate legal entity from its owners who share responsibility for the business up to the value of their investments.

SECTION 3: IMPLICATIONS OF BUSINESS STRUCTURE

The business structure has various implications such as liability, tax, and control.
Sole traders and partners have unlimited liability, meaning they’re personally responsible for the business’s debts. In contrast, the liability of directors in a limited company is capped.
Tax treatment also varies: sole traders and partners pay tax on their income, while limited companies pay corporation tax on profits.
Control and decision-making power is solely in the proprietor’s hands in a sole trader business. In partnerships and limited companies, decision-making is distributed among partners or shareholders.

SECTION 4: CHOOSING A BUSINESS STRUCTURE

When choosing a business structure, one must consider factors like ease of setup, personal risk tolerance and tax implications.
Start-ups and small businesses often choose the sole trader structure for simplicity and control, while larger enterprises may opt for the limited company structure for better liability protection and potential tax advantages.
The choice of business structure can profoundly impact business operations, legal obligations, and the strategic direction of the enterprise.

SECTION 5: ADAPTING BUSINESS STRUCTURE

As the business grows and evolves, the initial structure might need to be updated to better align with the business’s current situation and goals.
This may involve registering as a limited company, bringing in partners, or seeking external investors.
Regular evaluations are recommended to ensure the chosen business structure is still the most beneficial for the company.