The role of business in the public arena is evolving. It is really important to understand what is the simplest form of business.
We’ve outlined the simplest form of business ownership or types of business entities, and the factors to consider when choosing your business structure.
Responding to the economic, social and environmental interests of all stakeholders – customers, shareholders, employees, society and suppliers – will benefit the organization and help create value for both current and future generations. Here I’m going to share the simplest form of business.
1. Types of Business Ownership
There Four types of business entities I’m going to share in this section.
Sole Proprietorship
A sole proprietorship is the best and easiest form of business ownership. It is owned by one person.
There is no distinction between the person and the business. The owner shares in the business’s profits and losses.
Since the sole proprietor is self-employed, self-employment taxes must be paid. There is no liability protection for the owner.
The owner is liable for all debts. If the individual is sued and loses, the business and personal property may be seized to pay obligations.
Sole proprietorships do not have perpetuity. If the proprietor sells the business, quits, or dies, the business ceases to exist.
General Partnership
A general partnership is established by two or more members. Like the sole proprietorship, the partners are not separate from the business.
A partnership agreement should be created that states the duties of each partner, who makes the final decision, and how profit and losses will be apportioned.
If the partnership does not have an agreement, the Kansas Uniform Partnership Act will automatically govern the partnership.
The provisions set forth in this act may not be in the best interest of a particular partnership.
Unless provisions have been established, each individual is responsible for all of the partnership’s debt.
Also, each partner can incur debt on behalf of the business unless other provisions have been made. Each partner shares in the losses and profits of the business.
Partnerships do not have perpetuity. When a partner leaves or dies, the business ends.
Corporation
A corporation is a separate legal entity similar to an individual. Articles of incorporation are required to be filed with the state.
The name of the business is followed by the word “inc.” or “incorporated” this indicates that it is a corporation.
Annual shareholder meetings are required. A corporation is able to buy and sell property, sue and be sued, and protect its owners from liability.
The owners, called shareholders, are individuals who own shares of the corporation’s stock.
The stock can be purchased by a single person or many individuals. Unlike proprietorships and partnerships, the company can pay for benefits rather than the individual.
Corporations have perpetuity because if an owner, shareholder, dies, the business does not cease to exist.
Limited Liability Company
A limited liability company is a separate legal entity like a corporation. As such, it is capable of buying and selling assets, as well as to sue and be sued.
In addition, An LLC is not a perpetual business.
A limited liability company either exists for a fixed period of time or until a member leaves die or are prematurely terminated.
A limited liability company is also deemed terminated when fifty percent or more of the total interests are exchanged within a twelve-month period.
3. The Phases of the Simplest form of Business.
Companies can find themselves in different strands of each of these dimensions.
However, in general, three basic phases can be distinguished:
1. Compliance
Compliance involves a mainly reactive approach to sustainability. Sustainability is primarily addressed in response to regulatory compliance, peer pressure, and supplier requests.
The prospect of noncompliance with regulatory requirements triggers companies to focus on sustainability.
2. Risks and Opportunities
Risks and Opportunities involve a more proactive approach. Companies’ awareness of sustainability is increasing and they become more effective in dealing with sustainability risks, potential cost savings and revenue opportunities.
This leads to an evaluation of the potential to create stakeholder value and profitability.
3. Strategic Sustainable Value Creation
Strategically sustainable value creation) comprises the full integration of sustainability into the organization: in its strategy, governance, risk and opportunity management, activities and performance.
This means establishing CEO and board-level commitment to sustainability and incorporating it into top-level decision-making.
Both top-down and bottom-up support is needed to make a sustainable growth strategy a success.
4. The Dimensions of the Sustainable Growth Business Model
- Strategy
- Leadership
- Driver
- Stake Holders Relations
- Business Alliance in the Supply Chain
- Organizational Structure (Embedding)
- Transparency /Reporting
1. Strategy
This dimension defines the strategic angle of the business in relation to sustainability.
The sustainability phase of the strategy (i.e. its maturity level) is defined by the time frame of the strategy (short, medium or long-term).
The focuses of the business on investors versus stakeholders, and the extent to which the strategic key goals relate to profit maximization versus value creation.
In the ultimate stage of integration, the strategy of the business is focused on creating long-term value for a variety of stakeholders.
In this stage, it is clear for internal and external stakeholders how ‘living the company’s values’ creates value for both the company and its social and natural environment.
In developing the business strategy, the organization can choose to support existing global frameworks like the UN Global Compact.
From the large variety of issues that can be identified in such frameworks, the focus can be further strengthened.
In the process of defining the focus, a materiality assessment and stakeholder dialogue are necessary.
Having established a corporate sustainability strategy for the organization as a whole, it should then go on to define a set of specific, measurable and realistic objectives, KPIs and targets, including the associated timeframes.
In order to enable effective measurement of the value created, targets must not only be set for the short term, but also for the long term.
The corporate objectives need to be translated into relevant objectives at subsidiary and location level.
Scenario development, including clear quantitative projections, can form an important basis for the strategy.
2. Leadership
The ‘leadership’ dimension comprises the tone at the top and management style.
It defines the way in which the organization’s top, senior and middle management drive the sustainability agenda.
The maturity level of the leadership dimension is influenced by the degree of pro-activity of leadership communication.
The number of leaders advocating the sustainability agenda, and the degree of cooperation in doing so – ranging from an individually dedicated CEO to full board commitment.
Other defining characteristics are the degree to which board-level leaders personally ‘walk the sustainability talk’, and the extent to which they are capable of understanding and explaining their organization’s periodic sustainability progress reports.
The phase of this dimension on the sustainability roadmap is defined by:
• whether the company’s sustainability efforts are motivated by cost reduction opportunity rather than by market expansion opportunities;
• the degree to which regulations and compliance policies are considered an element of ’good housekeeping’ rather than the main focus;
• how innovation initiatives are resourced and prioritized;
• whether the business is open to creating (or evolving into) new markets or industries in order to increase its impact on both its bottom line and society.
In more resource-intensive industries, the sunk costs of physical assets tie the business to vested interests and to its existing core activities.
In the most cutting-edge phase, the business is beyond the exploration of cost reduction opportunities.
It has moved on to focus on sustainability as a driver of innovation and market creation or expansion.
This may involve transformation into a new industry or market segment, which in turn may alter or significantly expand the core activity of the company.
Incubator programs are in place to stimulate a culture of transformational sustainable innovation and entrepreneurship, ‘owned’ by different divisions throughout the business.
5. Key Success Features
Key features of sustainable growth that need to be adhered to in order to successfully implement a sustainable growth model:
1. Focus: The business is aware of the areas where it can, relatively, have the largest impact.
Divisions within the business fully understand how they contribute to the overall value proposition.
Sustainability requires a focus on long-term stakeholder value instead of the traditional sole focus on short-term shareholder value.
2. Innovation: Sustainability is considered to be a key driver of innovation, both environmentally (in terms of technological innovation to reduce a company’s ecological footprint) and socially (human factor).
3. Integration: Sustainability is integrated into the KPIs and targets of the business, is embedded inline management and implemented in cross-functional cooperation within the organization.
This includes integration in employee remuneration systems. Quantitative targets and clear timeframes define how value is created for market competitiveness, operational excellence and for society.
Sustainability executives mainly advise on the strategic growth strategy and related initiatives and have a subject-matter expert role (roll-out takes place within line management).
4. Policy and Accountability: Company strategy is supported by policies and sustainability KPIs and targets, ranging from safety, quality and finance to risk.
Adherence to these policies is monitored closely through the governance structure of the organization.
5. Human Capital: Sustainability goals are embedded in leadership development and talent retention and attraction.
6. Leadership: The sustainability agenda is driven by board-level executives and integrated into their overall business strategy; they demonstrate visionary and inspirational leadership.
Key characteristics are a long-term perspective, attention for bottom-up innovation and employee crowdsourcing (shift from coercion to co-creation).
7. Business Code of Conduct: Company values and corporate identity are consistently aligned with the sustainable business strategy.
The spin-off is both internal and external, impacting full value chains.
8. Partnerships: Sustainability initiatives are co-created in collaboration with science, NGOs, governments and other businesses both within and beyond the supply chain.
9. Transparency: Financial and non-financial (sustainability) information is considered to be inextricably linked and reported externally along with high-quality standards.
10.Engagement: Customers and other stakeholders have an increasing amount of influence.
The company seeks engagement in a dialogue connecting deeply with stakeholders’ interests.
Also, the scope of sustainability goals is not limited to the production phase of a product’s life cycle but includes the end-user phase (i.e. consumer use and recycling).