Understanding Business Classifications –

A business is the very essence of a nation’s economy. Nearly every product and every service that a consumer uses is the result of a business. Food, water, electricity, transportation, health and education whether it be online: American InterContinental University, Baker College, Capella University, Kaplan University, Northeastern University, etc., or traditional – are all businesses. Regardless of whether they’re for-profit or not, businesses can be classified into different types depending upon the type of ownership as well as the type of product or service provided.

Forms of Ownership

Ownership of a business plays an important role in how that business operates and makes money. It also, influences legalities and taxation regulations. A business can be a simple one-man show or a large organization consisting of many partners or members. Businesses can generally be classified into 5 main types according to ownership – sole proprietorship, partnership, corporations, S corporations and Limited Liability Companies. Here is more information on all five types of ownerships.

Sole Proprietorship: A sole proprietorship is a business that is owned and operated by one person. This business owner is personally liable for the business and the income from a sole proprietorship is taxed at personal tax rates.

Partnership: A partnership is a business that is owned and operated by two or more individuals. Usually, each partner contributes to the business in one or more way. In order to ensure smooth business operation and dealings, a legal partnership document must be drawn up documenting decision-making, profit division and sharing as well as changes in ownership. There are three types of partnerships – general, limited and joint ventures.


Corporations: A corporation is a business organization formed separate of the people who invest in it. In other words, a corporation signifies limited liability for its stockholders. So, while the stockholders are the owners of the corporation, they are not liable for its acts or debts.

S Corporation: An S Corporation is a corporation that fulfils the requirements and has chosen to be taxed according to Subchapter S of the Internal Revenue Code. In an S Corporation, the net profit or loss is not taxed for the corporation but has to be included by the individual stockholders on their individual tax returns.

LLC: An LLC or Limited Liability Company is a type of business ownership that is different from a corporation or a partnership. It has multiple owners who are called members and not partners. Also, the members have the liability protection that a corporation enjoys. In addition, LLC members have the flexibility to divide profits as they deem fit and do not have to keep minutes or formal records of meetings.

Business Classifications

Business classifications are determined on the basis of the nature of service or products manufactured by a business. Besides the regular businesses that include retailers, manufacturers and service providers, there are several other types of businesses. These include agriculture, information, real estate, transportation and more.

Agriculture and Mining:  The agriculture and mining business refers to companies and corporations that deal with directly with agriculture- and mining-related activities or with their by-products. These companies include farms, dairies, mines and nurseries. These businesses are mainly concerned with using raw materials such as plants and minerals for their production activities.

Financial: Financial businesses include institutions such as banks and lending agencies and other organizations that generate profits by managing and utilizing finances or capital.

Information: Information businesses include businesses that provide intellectual property services and its resale. These include book and magazine publishers, movie producers and studios as well as software companies.

Manufacturing: The manufacturing businesses primarily produce or manufacture products from a range of raw materials. These finished products are then sold to consumers for profit. The manufacturing industry is vast and diverse and includes everything from automobiles to clothes to domestic appliances, processed foods and more.

Real Estate:
The real estate businesses are those that make profits by buying, selling, leasing and reselling property, land and buildings. It includes both individual real estate agents as well as larger companies that buy land and develop them before selling them to consumers.

Retailer/Distributor: The retail industry is made up of businesses that source finished products from manufacturers and then, sell them for a profit to the consumer. Retailers and distributors, therefore, act as middle-men between the producers and the consumers. Retail businesses can be just as diverse as the manufacturing industry.

Service: Service businesses typically provide intangible services to a consumer. These could include anything from housecleaning services to typing or transcription to consulting.

Transportation: The transport business deals with delivering products to consumers and retailers from one place to another. It includes courier services, logistics providers as well as trucking and delivery companies.

Utilities: Utilities are services usually provided by government-authorized agencies. These services include gas, electricity, heating, water and other public service essentials.