According to many financial experts, enterprise refers to a for-profit business and in most cases, this type of business is run by an entrepreneur. Basically, we use the word “enterprise” to distinguish between a small business and a large business. Moreover, we also use the word “enterprise” to describe a for-profit business or company. If your business has more than 1000 employees, more than $1B in revenue, and multiple locations then you can call your business an Enterprise.
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- The word enterprise comes from the French word entreprendre
- Enterprises are available in quite a few types like sole proprietorship, partnership, public limited companies (PLC), corporation, etc.
- A sole proprietorship is the smallest business type and in this business structure the owner has to bear all the liabilities for any damages by the business
- In a partnership business structure, a company is run by at least two or more owners, entities, etc.
What is an Enterprise?
In the world of business, people use various terms to describe a business. Enterprise is a very commonly used term to define a business. In most cases, people use enterprise to indicate a large business.
When you see the word enterprise with a business name then you can expect the business has several locations, a complex business structure, large revenue, lots of employees, etc. The word enterprise comes from the French word entreprendre. Here entreprendre means ‘to undertake’. On the other hand, the word “entreprendre” comes from the Latin “inter prehendere.”
Below is some definition of Enterprise from various dictionaries:
According to Yourdictionary.com:
“Any undertaking or project, with the implication that it is of reasonable size and complexity”
According to Merriam-webster.com:
“A project or undertaking that is especially difficult, complicated, or risky”
According to Dictionary.cambridge.org:
“An organization, especially a business, or a difficult and important plan, especially one that will earn money”
According to dictionary.com:
“A project undertaken or to be undertaken, especially one that is important or difficult or that requires boldness or energy”
According to Collinsdictionary.com:
“Enterprise is the activity of managing companies and businesses and starting new ones”
“Enterprise is the ability to think of new and effective things to do, together with an eagerness to do them”
According to Vocabulary.com:
“Enterprise describes a readiness to act boldly to get something started, like the enterprise it takes to start a charity with only a dream and a few dollars”
According to the Free Dictionary:
“A company organized for commercial purposes; business firm”
Different Forms of Enterprises
Legally, the enterprise has quite a few forms, they are –
- Sole proprietorship
- Private Limited Companies (Ltd.)
- Public Limited Companies (PLC)
- Professional Limited Liability Company (PLLC)
1. Sole proprietorship
This is a type of business structure where the business is run by an individual. This type of company is usually the smallest business type but they are very popular. In this type of business structure, the owner has to bear all the liabilities for any damages by the business. Some key advantages and disadvantages of Sole proprietorship are –
|This type of business structure is very easy to setup||As an owner, you will have unlimited liability|
|Usually, there is less paperwork so the cost is also low||This type of business structure lacks continuity|
|You don’t have to pay any corporate tax||It is very difficult for the business owner to raise capital for the business|
|There is no need for any annual reports or filings with the state office||It’s not possible to take a business loan with this type of business structure|
|It’s very easy to keep your records and there are not many legal restrictions||You will find it difficult to sell a sole proprietorship business|
In this type of business structure, a company is run by at least two or more owners, entities, etc. Here, the ownership can be equal but it doesn’t need to be equal all the time. Here, the owners share the profit, loss, and risk according to their ownership. For example, if an owner has a 50% partnership then he will gain 50% profit or loss 50% of his investment. Moreover, he will be liable for the 50% business risk. This type of business structure has three types, they are –
- General Partnerships
- Limited Partnerships
- Joint Ventures
Below are some advantages and disadvantages of this type of business structure:
|The owners can share the workload and quickly develop the business||There might be disagreements while making a business decision|
|This type of business requires less paperwork||You can’t make any crucial business decisions without informing the other partners|
|You can easily raise capital for your business||You have to share the profits with others|
|You don’t have to pay any corporate tax||All the business partners have to separately file an annual income report|
|It’s very easy and affordable to form this type of business structure||All the business partners have liabilities|
3. Private Limited Company (Ltd.)
This type of business structure has private ownership and refers to small businesses. This type of business formation limits the liability of the owners based on their total shares. Moreover, owners won’t be able to publicly trade their shares. In this type of business structure, the company has to pay the corporate tax and share the profits among the shareholders. Some advantages and disadvantages of a Private Limited Company are –
|In this type of business structure, the profit is shared only among the shareholders||You have to register a private limited company with the Register of Companies|
|There are no minimum requirements to form this type of business formation||The setup cost of this type of business structure is very expensive|
|It has a separate legal entity so the personal assets of the shareholders will be protected||You have to submit documents like Memorandum of Association and Articles of Association|
|It is very easy to raise capital for the business||It’s not possible to publicly trade the shares|
|The process of transferring shares is also very simple||The number of shareholders can’t exceed 50|
4. Public Limited Company (PLC)
A public limited company is different from a private limited company and the main difference is, that in a public limited company the shares can be traded among the general public. When you buy a share of a public limited company you will have a limited liability of that company. Basically, this type of business is managed by directors and owned by shareholders. Below are some advantages and disadvantages of this business structure –
|You can easily raise capital for the business via the public issue of shares||This is a complex business structure and difficult to setup|
|It is very easy to increase the creditworthiness of the company by listing the company on a stock exchange||The business formation cost is very high|
|You can rapidly grow the business||Require lots of paperwork and you have to submit lots of legal documents|
|It has a separate legal entity so the personal assets of the shareholders will be protected||You have to submit corporate tax|
|Thanks to the prestigious profile, you can easily increase the brand value of your business||This type of business structure is vulnerable to takeovers|
5. Professional Limited Liability Company (PLLC)
This type of business structure is specially designed for licensed professionals like doctors, lawyers, architects, engineers, etc. You should keep in mind that PLLCs are also subject to the same laws as ordinary LLCs. Moreover, you should also know that not all the USA states allow licensed professionals to start PLLCs. Therefore, you should contact with the local authority before forming a PLLC. Some advantages and disadvantages of this business structure are –
|If you are a professional, then you can form a PLLC as an alternative to a general partnership||This type of business structure is not recognized in all states of the USA|
|All the members of a PLLC aren’t personally liable for business debts||Eligibility for this type of business structure is limited to certain licensed professions|
|You can easily raise capital for your business||All the members of the PLLC are subject to self-employment taxes|
|You don’t have to pay any corporate tax|
This type of business structure protects the business owners from all types of liabilities and lawsuits that the corporation faces. This type of business entity is completely separate from individuals, stockholders, or shareholders which is very key while running a large business. Here the business is owned by the shareholders and the organization is run by a board of directors who are elected by the shareholders. Let’s check some advantages and disadvantages of this business structure –
|This type of business structure offers personal liability protection and business security||This type of business structure requires double taxation|
|You can easily raise capital for your business||It’s a bit costly to form a corporation|
|Corporation offers stock and stock options to employees||Require lots of paperwork and you have to submit lots of legal documents|
|This type of business structure has established a power structure from top to bottom||You have to submit corporate tax|
FAQs about Definition of Enterprise
What type of company is an enterprise?
Enterprise is a for-profit type of company. But in most cases, an enterprise is associated with entrepreneurial ventures.
Why businesses are called enterprises?
You can call a business an enterprise if the business has several locations, huge revenue, lots of employees, etc. Moreover, if a business has multiple divisions that collaborate together and work for the development of the company then it can be called as an enterprise.
Are enterprises and companies are same?
If you consider the meaning of these two words then you can say that they bare the same. In fact, you can use enterprise and company as a synonym for each other. However, people, use the word enterprise to describe a large business while using the word company to describe a medium-size business.
Last Updated on November 3, 2022 by Magalie D.
Magalie D. is a Diploma holder in Public Administration & Management from McGill University of Canada. She shares management tips here in MGTBlog when she has nothing to do and gets some free time after working in a multinational company at Toronto.