Understanding Company Concepts, Types, and Functions
Company: Concept and Types
1.1 Definition of Undertaking
Definition from the standpoint of economic theory: a set of factors of production, combined under the leadership, responsibility, and control of the entrepreneur, whose function is to produce with a given target.
- Self-contained unit of production.
- Uses work of others.
- Produces for the market.
- Seeks profit.
- Has capital.
- Innovates.
- Takes risks.
The factors of production:
- Land (natural resources, raw materials, materials).
- Work (manpower, personnel, employees, workers).
- Capital (financial resources, machinery, means of production).
The employer is one who makes decisions, is responsible for them, and controls their implementation.
Production: increasing the capacity of the bins to meet needs (production increases the value of resources used because it increases their usefulness).
The value is determined through the consumer, as it is the one for whom the product is intended to satisfy. The quantitative reference value is shown in the price that the product has on the market. The price is only valid as an indicator that there is always competition.
The most common objectives:
- Maximize the benefit (Classical Theory: This is not always possible because no one can calculate the maximum previously).
- Obtaining sufficient profit (this goal is more realistic for the company).
- Comply with the plan (typical of planned economies).
Administrative Approach
- Company as a human organization of a cooperative nature.
- Presence of authority.
- Objectives.
- Ranking and functionality of its members.
- Distinction between members and non-members.
- A tendency to perpetuate itself.
Definition of business (Business economics): A set of elements (human, material, and immaterial) located in one place, arranged by an organizational structure, and aims to fulfill certain objectives.
- Production unit.
- Planned by the human mind.
- Raises goals and purposes.
- Equipped with organizational structure.
- Involves financial, technical, and moral risk.
- It is a decision unit.
Definition of company (basic economic unit of production): this combination of factors, in some quantity, for the production of goods and services with the aim to reach defined objectives.
1.2 Functions of the Company
- The role of value creation (economic theory).
- Discount or advance of the product.
- Assumption of technical and economic risks.
- Coordination, direction, and control of the production process.
- Social function.
Administrative Approach
- Company as a human organization of a cooperative nature.
- Presence of authority.
- Objectives.
- Ranking and functionality of its members.
- Distinction between members and non-members.
- A tendency to perpetuate itself.
Definition of business (Business economics): A set of elements (human, material, and immaterial) located in one place, arranged by an organizational structure, and aims to fulfill certain objectives.
- Production unit.
- Planned by the human mind.
- Raises goals and purposes.
- Equipped with organizational structure.
- Involves financial, technical, and moral risk.
- It is a decision unit.
Definition of company (basic economic unit of production): this combination of factors, in some quantity, for the production of goods and services with the aim to reach defined objectives.
1.2 Functions of the Company
- The role of value creation (economic theory).
- Discount or advance of the product.
- Assumption of technical and economic risks.
- Coordination, direction, and control of the production process.
- Social function.
1.3 Classes of Companies
- According to legal form:
- Singles.
- Societies.
- For the activity:
- Primary sector (agriculture, extractive industries).
- Secondary sector (industry).
- Tertiary sector (services).
- For the ownership of capital (property):
- Public.
- Private.
- Cooperative (not fully closed).
- By size:
- Small.
- Medium.
- Great.
- Because of its scope.
- By the nature of its objectives.
a) Private firms are those in which the capital comes from members and those seeking an increase of their fortune.
b) Public companies are those that belong to the State; its objective is to increase social welfare.
c) Cooperatives are those companies in which workers are the owners of the capital of the company (engaged in activity); they seek the benefit of all. There are two types:
- Production cooperatives.
- Consumer cooperatives.
d) The societies of people (the personal dimension of its partners, name, credit, prestige, worth more than its capital) partners with unlimited liability, jointly and severally from creditors.
e) Companies of capital: the liability of the partners is limited to the amount of capital contributed, without compromising their personal assets.