Business Classification Methods: Size, Ownership, and Legal Structure

1.1 Classification Based on Product Nature

Companies are classified depending on the nature of their products or services:

Industrial Companies

These companies buy raw materials and products from other companies to manufacture a more elaborate product.

Commercial Companies

These intermediary firms buy products and sell them directly to consumers without altering their form or substance.

Utilities

Utilities do not produce or sell physical property; they offer the direct enjoyment of an activity or service (e.g., electricity, water, telecommunications).

1.2 Classification Based on Business Ownership

The role of business ownership determines how capital and means of production are controlled:

• Private Companies: The capital is held in private hands. These constitute the vast majority of businesses.
• Public Companies: The means of production remain with the state or other public sector entities.
• Joint Ventures: The ownership of business assets is shared by the state and private individuals.

1.3 Classification Based on Size and Capacity

Companies are classified according to their size, productive capacity, total assets, and volume of business. The level of these indicators varies significantly from one country to another. For example, a small business in the U.S. might be considered large in Germany or Spain.

Multinational Corporations

These are large companies employing thousands of employees, producing and selling products around the world.

Small and Medium Enterprises (SMEs)

SMEs represent over 90% of all enterprises in a country.

Advantages of SMEs

• Flexibility: With few levels of command and power concentrated in the owner or manager, decisions are made quickly, avoiding the long chains of command typical of large companies.
• Motivation and Teamwork: The smaller number of workers fosters better communication and teamwork. Direct participation of employees in business decisions leads to higher motivation and less conflict.
• Direct Treatment: SMEs often provide more personalized or direct customer and employee treatment.

Disadvantages of SMEs

• Higher Costs: SMEs may struggle with supporting higher operational spending and maintaining quality of service compared to larger entities.
• Financial Constraints: Larger companies find it easier to secure loans under favorable conditions because they are perceived as lower risk. SMEs often face higher interest rates.
• Aging Technology: Due to a lack of financial means to adapt, SMEs often remain technologically outdated compared to large companies that utilize cutting-edge technology and huge resources for research and development (R&D).
• Personnel Leakage (Staff Turnover): Opportunities for professional development are much more limited in an SME than in a large enterprise. Highly skilled professionals are often attracted away by greater incentives, pay, and career paths.

1.4 Legal Personality and Structure

Legal personality refers to a collective entity having its own distinct legal identity, independent of the individuals who compose it.

There are two main groups:

• Unincorporated Businesses: These enterprises are identified directly by the natural persons who compose them and are governed mainly by the Civil Code.
• Enterprises with Legal Personality (Societies): These are governed exclusively by commercial law.

Commercial Law

Commercial law is the body of law that regulates the economic activities and development of companies.