What is a company? (definition, functions and types)

A company is an entity created by one or more people, and made up of human, material and financial elements, dedicated to carrying out activities of extraction of resources, production of products, commercialization of products or provision of services, in order to obtain a benefit. economic.

A company is also defined as an action or task that requires some effort (an example of use would be: “starting and moving forward a business is a difficult company , but not impossible”); However, taking into account the business nature of this site, in this article we will develop the definition of a company as an entity dedicated to carrying out activities of extraction of resources, production of products, commercialization of products or provision of services.

In this article you will find:

  • What is a company?
  • Functions of a company
  • Types of companies
  • Final notes

What is a company?

A company is an entity created by one or more people, and made up of human, material and financial elements, dedicated to carrying out activities of extraction of resources, production of products, commercialization of products or provision of services, in order to obtain a benefit. economic.

The human, material and financial elements that a company usually has are the following:

  • Human elements : the people who work in or for the company. Includes company executives, managers, administrators, operators, vendors, etc.
  • Material elements : the tangible assets that the company owns. It includes the machines, equipment and tools necessary to extract resources, produce products, market products, or provide services, buildings, furniture, vehicles, raw materials or supplies, merchandise, etc.
  • Financial elements : the money and financial assets that the company owns. It includes the cash that the company has destined for the payment of bills, taxes, wages, electricity and water services, etc., and financial assets such as stocks and bonds that it owns.

In addition to the elements mentioned, other elements that are usually found in any company are: objectives , strategies , a vision , a mission , values , technology, knowledge and information necessary to compete with other companies.

Functions of a company

To better understand the concept of a company, let us see below the main functions that every company usually has.

  • Extract resources, produce products, market products or provide services : depending on the type of company that is according to its activity, the main function of a company is to extract resources from nature, produce or manufacture products, market products, or provide services.
  • Improve the economy of the locality : to a greater or lesser extent, every company improves the economy of the locality in which it is located or operates since it promotes the exchange of money for products and services (by selling products and services, and allowing their owners and workers earn money with which they can purchase products and services from other companies); but also because you pay taxes.
  • Contribute to the well-being of society : a company also contributes to the well-being of the people in the locality where it is located or operates since they provide products and services that satisfy needs, tastes and preferences, or solve problems; but also because it generates jobs.
  • Generate economic benefits : finally, unless it is a non-profit company, a company has as its main objective to generate economic benefits, basically through the sale of products or the provision of services, either to individuals or to other companies .

Types of companies

Companies are usually classified according to various criteria such as their activity, their size, their legal form, the origin of their capital, their field of activity, and the destination of their profits. The following is a summary of the different types of companies that exist according to these classifications.

According to your activity

The main classification that is made to a company is according to the main activity to which it is dedicated, and may be:

  • Extractive : when it is dedicated to extract renewable or non-renewable resources from nature. For example, in the case of an agricultural company, a livestock company, a fishing company, a mining company, a logging company, etc.
  • Producer or manufacturer : when engaged in producing or manufacturing products; that is, transform inputs or raw materials into products that are later destined for sale (finished products). For example, in the case of a food producing company, a furniture manufacturing company, a clothing company, etc.
  • Commercial : when engaged in product marketing; that is, to the purchase and subsequent sale of finished products. For example, in the case of a company dedicated to the sale of electrical appliances, a company dedicated to the sale of auto parts, etc.
  • Of services : when it is dedicated to providing certain services to people or other companies. For example, in the case of a transport company, a tourism company, an insurance company, etc.

According to your size

There is no consensus when determining when a company is big or small; however, a common classification of a company according to its size is usually the following:

  • Microenterprise : when it has less than 10 workers, annual income up to US $ 50,000, fixed assets up to US $ 20,000, and annual sales up to US $ 40,000.
  • Small business : when it has between 10 to 40 workers, annual income up to US $ 1,000,000, fixed assets up to US $ 300,000, and annual sales up to US $ 750,000.
  • Medium-sized company : when it has between 40 to 100 workers (this in Latin America, 200 in the European Union, 500 in the United States, and 300 in Japan).
  • Large company : when the criteria exceed the previous values.

When speaking of MYPEs , reference is made to the set of micro and small enterprises, and when speaking of SMEs , reference is made to the set of small and medium-sized enterprises.

According to its legal form

The classification of a company according to its legal form is made for legal purposes, and varies according to the country in which it is located; however, a common classification of a company according to its legal form is as follows:

  • Individual company : when it has a single owner. An individual company in turn can be a Sole proprietorship, when the owner assumes all the obligations of the company in a personal capacity and unlimitedly, or an Individual Company with Limited Liability, when the obligations of the company are limited to the assets that this possess.
  • Company or partnership : when you have several owners or partners, who share the rights and obligations of the company. A company or partnership in turn can be a Collective Society, a Limited Partnership, a Limited Liability Commercial Company, or a Corporation.

According to the origin of your capital

Another common classification of a company is the one made based on the origin or ownership of its capital, which may be:

  • Public company : when its capital comes from the State. Its main objective is to contribute to the well-being of citizens. For example, in the case of a company dedicated to providing free education, a company dedicated to providing electricity service, a company dedicated to providing drinking water service, etc.
  • Private company : when its capital comes from private individuals. Its main objective is to obtain an economic benefit.
  • Mixed company : when its capital comes from both the State and private individuals.

According to its scope of activity

A company is also usually classified according to the geographical area in which it carries out its activities, and may be:

  • Local company : when its scope of activity is limited to the locality in which it is located; for example, to a town, to a city, etc.
  • Provincial company : when its scope of activity is limited to a province or state.
  • Regional company : when it operates in several provinces or states of a region.
  • National company : when it operates in several regions of a country.
  • Multinational company : when its activities extend to several countries.

According to the destination of your benefits

Finally, a company can also be classified according to the destination it gives to its economic benefits, which can be:

  • Non-profit company : when its economic benefits are reinvested in the company itself to allow its growth. Its main objective is to contribute to the well-being of society. For example, in the case of a company dedicated to providing free education, a religious company, a charity company, etc.
  • For-profit company : when the economic benefits are destined in part to the growth of the company, and in part to its owners or investors. Its main objective is to obtain an economic benefit.

Final notes

Businesses are the engine of the economy of the country or locality in which they are located or operate, since among other things they promote the exchange of money for products and services, pay taxes, and create jobs.

In this article we have seen the definition of a company as an entity dedicated to the extraction of resources, production of products, commercialization of products or provision of services, as well as its main functions, and the different types of companies that exist.

To know the steps necessary to legally establish a company you can visit: How to establish a company step by step , and to know the necessary steps to create one you can visit: How to start a business step by step .

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