Types of Business Profits
The term “Business” has a number of definitions in different dictionaries and contexts. A business is commonly defined as a corporation, partnership or even an unincorporated association, having either capital stock or debts, engaged in commercial, manufacturing, or service activities for the profit of the individuals or groups operating the enterprise. Companies may be publicly traded companies or privately owned cooperatives. Business enterprises may be organizational as well as functional, with organizational activities being a feature of commercial activities while functional activities are those involving the production and the distribution of goods and services. The concepts of enterprise and business are used to refer to the processes by which an enterprise provides its output or products to external users, as well as the processes by which the external users pay for the goods and services produced or supplied by the enterprise.
For-Profit Corporations: A for-profit corporation is one in which the profit or loss of the company is adjusted so as to maximize its value. Such corporations normally seek to generate profits through the sale of goods and services to customers. Some businesses may also choose to sell their products under contract. Under this type of business, an individual or a corporate client pays an agent, called a middleman, a fee for buying or selling the goods or services that have been contracted for. In order to prevent situations in which the middleman receives a share of the profit, most states have enacted laws restricting the amount of profit that can be generated by a for-sale transaction.
Private Equity: The term “private equity” refers to the partnership of a business or a corporation with the investment of the funds of one or more investors. Most private equity transactions involve the acquisition of a portion of the equity of the business by another firm or entity. There is no public reporting requirement in most states concerning the finances of private equity. This can create a problem for the funding of start-up ventures since some investors may not wish to put their money into a business that has no chance of profitability.
Franchisees: A franchisee is a business that receives a legal certificate of ownership from a manufacturer or distributor. The franchisee establishes outlets that promote the availability of the product or service under the franchisor’s brand name and then collects regular recurring fees based on the volume of sales. In recent years, franchises have increasingly come under fire as an avenue for profiteering by the franchisee and others in the industry. Franchisees often face lawsuits that allege they did not receive proper warnings about potential health or safety hazards, did not provide quality service or did not perform adequate inspections prior to opening for business.
Acquisitions: An acquisition is the purchase of an existing business that is done in compliance with applicable laws and regulations. Examples of acquisitions include purchasing a fixed asset such as a plant or a building, and adding a new employee. Another example is the purchase of a facility for manufacturing auto parts or other goods. When a business purchases the assets of another firm, the new owner generally takes on all of the liabilities of the previous owner, including accrued interest. Therefore, acquisition loans can add to profits for businesses by relieving them of past due accounts receivable.
Real estate: Real estate transactions involve the purchasing or leasing of property for use as a business location. Properties can be bought or leased for a specific period of time at a specific cost. The main article of sale in real estate is the land, which is often used as the main asset of the business. This means that properties are used to make profits for businesses as the primary venue in which goods and services are performed.