Business Types, Structure, Finances, and Money
**Types of Companies**
Companies are classified according to objective criteria:
A) Activity
The economic activity can develop in one of these 3 sectors:
- Primary Sector: Formed by companies engaged in the exploitation of natural resources.
- Secondary Sector: Includes firms engaged in processing or industrial activities, such as textile or metal.
- Tertiary Sector: It comprises two groups of businesses: trade, engaged in the sale of unprocessed goods, and services, for example, a bank or clinic.
B) Ownership of Production Factors
Depending on who the owners of the factors of production are, there are 2 types of companies:
- Private Companies: They are owned by private individuals or other companies.
- Public Companies: They are owned by the state or any public entity.
C) Legal Structure
According to their legal structure, companies are classified into two groups:
- Individual Companies: They belong to an individual who directs them and faces debts even with their personal property.
- Business Partnerships or Companies: They have one or more owners. The liability of members is limited to what they contributed.
The most common companies are:
- Limited Company: The minimum contribution is €60,101.21. The contributions of members, which are not always money, are divided into shares, representing fractional ownership of the company and giving rights.
- Limited Liability Company: The minimum contribution is €3,005.06. The liability of members is limited to subscriptions. Unlike shares, they need the consent of the other partners to be transferred.
**Components of a Company**
Every company must have a number of elements to work properly. They can be classified into 4 groups:
A) The Human Factor
All persons directly associated with the company.
B) Capital Assets or Production
They are economic assets that the company owns.
C) Organization
- Provisioning: Controls the purchase of materials and storage.
- Production: Produces the product or service that is the subject of entrepreneurship.
- Commercial: Markets and distributes the product on the market.
- Human Resources: Organizes and manages the company staff.
- Financing and Investment: Raises funds necessary for the proper functioning of the company.
- Address: Organizes and coordinates the other fields to achieve the set objectives.
This division of functions is typical of an industrial enterprise. In commercial or service enterprises, the production area does not exist.
D) Environment
The company is not an isolated entity but operates in an increasingly globalized world. Based on their level of influence, we can distinguish:
- Supporting Environment: The group of factors that equally affect all types of enterprises.
- Specific Environment: Those factors affecting the proper functioning of the company.
**Non-Bank Financial Intermediaries**
Institute of Formal Credit
A financial intermediary is atypical because it does not capture public resources in general. This financial entity operates under the instructions from the government, subsidizing economic sectors in difficulty.
Insurance Companies
Insurance companies issue a financial asset, the insurance policy. It is a contract whereby the insurer undertakes, in exchange for charging a premium and in case of the occurrence of some event, to indemnify, within the limits agreed upon, an injury suffered by the insured.
Private Pension Funds
Complementary pension funds are public retirement pensions paid by the local security policy.
Societies and Investment Funds
Groups of investors that are associated to better access the stock market.
Leasing Company
Leasing is a financing system by which a company can incorporate, on a lease, a capital good in exchange for a periodic fee.
**What is Money?**
Money is a medium of exchange or payment-collection generally accepted.
A) Role and Demand for Money
- Medium of Change: Because everyone accepts money as a medium of exchange, it greatly simplifies the problem of fitting the various offers and demands, subject to the availability of enough money.
- Deposit Value: Money is a non-perishable good that allows the holder to defer the decision to use it and store it as they see fit. Due to inflation, as time passes, fewer things can be purchased with the same amount of money.
- Common Accounting Unit: The economy measures the value of things in money.
Money is indirect, meaning it is only useful when we get rid of it to exchange it for goods or services. There are a number of factors:
- The average level of prices. When prices vary, the desire for liquidity may be altered.
- Income or real wealth. An increase in income or wealth increases purchasing power.
- The market interest rate. The interest rate and money demand are inversely proportional.
- Risk. Typically, people avoid risk.
B) The Price of Money
- Risk of Operation: When a loan is granted, the possibility always exists that it will not be returned, so the characteristics of the applicant must be borne in mind when determining the interest rate.
- Liquidity: The more liquid the asset, the less interest is generated, and vice versa.
- Duration of the Loan: The longer the loan, the more difficult it is to predict the scenario in which the borrower will have to cope with its return. The longer it is, the higher the interest rate the lender will require.
C) Cleaning Fiduciary Money
- Legal Money: Consisting of notes and coins issued by a competent institution, it is circulating in an economy. Today, Spain is one of the European Union countries in the Eurozone. One of those who have adopted the Euro currency, so the agency that issues and controls the amount of money in circulation is the European Central Bank.
- Bank Money: It is contained in different types of support but somehow exists only virtually in the bank. When we put legal currency in a bank, it disappears physically and is born as deposit money. As companies, banks try to capture the savings of households to channel them to other purposes.
- Demand Deposits or Savings: Also known as current accounts and books, respectively. Both deposits enable holders to have money immediately available, either in cash or using checks or magnetic cards.
- Fixed-Term Deposits: Those whose owner, in return for remuneration, undertakes to maintain them for a specified period so that they cannot dispose of them without incurring a penalty.