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Business and Strategy

Enterprise: Meaning, Purposes, Types

Updated on · By Ahmad Nasrudin Tag: ,

Enterprise Meaning Purposes Types
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What’s it: Enterprise is a business organization. It comes from Old French, which means “something done.” Those who start, operate, and run it are called entrepreneurs.

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Specifically, an enterprise is a profit-oriented business or company. Some may strike a balance between profit, social and environmental, as social enterprises do. 

Enterprise can refer to a small, unincorporated business such as a sole proprietorship. Or, often, we also identify with large companies with many employees.

Then, we also use it to refer to state-owned enterprises, a company controlled and owned by the government.

What are the goals of the enterprise?

Enterprises operate to make a profit by producing goods or providing services. Then, they sell it to consumers to satisfy their needs and wants. Consumers can come from households, businesses, or other organizations.

Others balance profit, social and environmental. They do not pursue maximum profit to create shareholder (owner) value. However, they maximize their social and environmental impact through the profits they make. Thus, they are a social enterprise.

Who started the enterprise?

Individuals who do so are called entrepreneurs. They turn an idea into a business. They plan, start, and run businesses to make a profit. So, they can earn money and accumulate wealth by commercializing their ideas. However, on the other side, they also have to bear the associated risks.

To do it all, entrepreneurs pool resources: labor, capital, and raw materials. Then, they organize these resources to produce goods and services. Then, they also usually divide operations into functional areas such as marketing, production, human resources, and accounting and finance.

Entrepreneur business ideas

Entrepreneurs love imagination to seek out business opportunities. They like to try new things and often see problems from a different perspective. They see the problem as an opportunity, which might be commercialized.

Entrepreneurs’ business ideas can appear in their daily lives. Whether it’s when they interact with coworkers, with family, while using a product, or even by chance.

Entrepreneurs often challenge the status quo and see problems as opportunities to find solutions. For example, they ask, what are the solutions to make our lives easier? What can be improved from an existing product?

Take Facebook, for example. Mark Zuckerberg’s idea to found Facebook emerged from Harvard University’s “Face Book,” a student directory featuring photos and personal information. And, it’s just a paper version. But, he saw that it had problems because it was difficult to collect student data considering many students. So, the question arises, “Why not build it online, so everyone contributes by sending photos and personal information.”

Creative thinking is the key. This allows entrepreneurs to come up with new ideas or approaches. Or, they adopt a business idea or concept in another country and adapt it to their own country.

Many people think creatively and come up with new ideas. However, not many can commercialize it into a new product. And entrepreneurs are one step ahead because they can do it. They made it happen by setting up a business.

New ideas are often easy to duplicate, especially when they have excellent growth potential. Therefore, entrepreneurs try to protect their business ideas legally. They patent their new invention, innovation, or process. When others copy it, they can claim compensation through patent, copyright, or trademark protection.

Back again to the subheading, where does the entrepreneur’s business idea come from? It can come from:

  • Everyday coincidence
  • Personal experience and others
  • Hobby or skill
  • Small budget research
  • Reading or attending events
  • Brainstorming
  • Previous work experience
  • Absorb ideas from others
  • Watching the trend

Entrepreneur characters

Entrepreneurs make money by building businesses. However, they also know the consequences; money does not come without risk. Therefore, to earn money, they are also willing to take risks.

Even though they have researched the market carefully and found a business opportunity, the risk remains. For example, they may fail to raise sufficient capital to fund the business. In other cases, customers may not choose to buy their product because it is relatively expensive. Both cases can lead to failure and loss.

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Some people like to take risks. Others weigh too much and calculate between risk and return without taking further action.

Entrepreneurs have a strong drive to realize the ideas and opportunities they find. In addition, they have the determination and energy to overcome obstacles in launching a new business.

Individual qualities distinguish successful entrepreneurs from ordinary people. It includes the following eight entrepreneur characters:

  1. Creative thinking by seeing problems as opportunities and likes to challenge the status quo
  2. Confident and have no doubts about the efforts they put in
  3. Unwavering spirit, motivated, and eager to achieve goals
  4. Self-disciplined and sticking to what they started
  5. The ability to manage risk and take risks only when the rewards are worth it
  6. Open-minded to bring more insight and perspective to them
  7. Persistence and when they fall, they get up again
  8. Clear direction on how to make their business idea a success

What are the types of enterprises?

The types of the enterprise depend on what variables we use. It will usually also vary between countries or institutions. Say, we use the business size to differentiate them, specifically the number of employees. The OECD divides them into four:

  • Micro: less than 10 employees
  • Small: 10-49 employees
  • Medium: 50-249 employees
  • Large: more than 250 employees

Next, we might distinguish between them based on their legal status: incorporated and unincorporated businesses.

Alternatively, we distinguish them based on their legal structure within a particular jurisdiction. It can be:

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  • Sole proprietorship
  • Partnership
  • Private limited company
  • Public limited company

Sole proprietorship

A sole proprietorship refers to a business structure owned and operated by an individual. It does not result in a separate entity. So, the assets and liabilities of the business are entirely in your hands as the owner.

You are fully responsible for the operation and success of the business. You have unlimited liability for any business risks. So, you may have to sell personal assets to pay off company debt.

But, if your business is successful, the profit of the business is entirely yours. You do not have to share it with others as in a partnership or only get a portion (dividends) as in a limited company.

Partnership

The ownership of the business is under two or more parties (partners). They work together to form and run a business. Each partner contributes differently depending on the agreement.

Unlike sole proprietorships, partnerships allow for the pooling of greater resources and capabilities. Each partner can bring certain resources, including capital and expertise, to lead the business to success.

In addition, business risk is also spread among partners. Likewise, profits must also be shared between them, the proportion depending on the partnership deed.

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Private limited company

A private limited company implies a separate business organization from the owners (shareholders). It is an incorporated business, unlike sole proprietorships and partnerships.

The owner assumes limited liability and is not personally liable for the financial and legal obligations of the business. So, when businesses have difficulty paying debts, they don’t have to pay off using their personal money. And, if the company closes, they only lose some of the money they invested in the company.

The owner does not operate the business directly. Instead, they appoint a board of directors to run the business, expecting the directors to act in their best interests.

Then, the owner is entitled to the company’s profits, but maybe not entirely. For example, companies may only distribute a certain percentage of profits as dividends to them. And, sometimes, companies don’t pay dividends at all, usually because they need an increase in internal capital.

Public limited company

A public limited company has similar characteristics to a private limited company. The difference between the two lies only in whether the company’s shares are available to the public for trading or not.

Public limited companies list their shares on the stock exchange. So, people can trade it. In contrast, private limited companies do not.

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Then, shareholders in a public limited company have the potential to get dividends and capital gains. When the company’s stock price rises, they can sell it and realize a profit.

Next, public limited companies are usually more transparent because they are bound by regulations. For example, they must regularly publish their financial statements.

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