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enterprisea producer or distributor of GOODS or SERVICES. The economic form of a business consists of:
- a horizontal business, a business which specializes in a single activity, for example the production of bread. See HORIZONTAL INTEGRATION;
- a vertical business, a business which combines two or more successively-related vertical activities, for example flour milling and bread production. See VERTICAL INTEGRATION;
- a conglomerate or diversified business, a business that is engaged in a number of unrelated production activities, for example bread production and the supply of financial services.
A business can take a number of ‘legal’ forms:
- a sole proprietorship, a business owned and controlled by a single person;
- a partnership, a business owned and controlled by two or more persons who are parties to a partnership agreement;
- a JOINT-STOCK COMPANY, a business owned by a group of SHAREHOLDERS and whose capital is divided up into a number of shares;
- a cooperative, a business owned and controlled by a group of workers. See WORKERS' COOPERATIVE.
For purposes of COMPANY LAW and the application of many company taxes and allowances (for example, CORPORATION TAX and CAPITAL ALLOWANCES) a distinction is made between ‘small and medium-sized’ companies and ‘large’ companies. Small and medium-sized companies (SMEs) are defined as follows (Companies Act, 1995):
- annual turnover of less than £11.2 million;
- gross assets of under £5.6 million;
- not more than 250 employees In 2000 there were some 3,662,000 firms in the UK, of which 80% were run by the self-employed. Most businesses are small with around 3,630,000 firms employing under 50 people; 24,600 firms employed between 50 and 249 people, while only 6,700 firms employed over 250 people. However, in terms of their contribution to gross domestic product (GDP) firms employing over 50 people contributed in excess of 75% of total output.
The total stock of firms fluctuates from year to year depending on the net balance of new start-up businesses and those businesses ceasing trading (see INSOLVENCY). Generally the total stock of firms increases when the economy is expanding (or as a result of some ‘special’ factor, e.g. the surge in newly established INTERNET businesses) and falls in a recession.
A final point to note is that with the increasing globalization of the world economy MULTINATIONAL ENTERPRISES are becoming more prevalent in economies such as the UK.