Small businesses are crucial for job creation and economic growth. In this article, we’ll explore types of small businesses, how they operate, and their impact on the economy.
Definition and Types of Small Businesses
A small business employs between fewer than 10 people to 500 employees, depending on the industry. The Small Business Administration (SBA) sets size standards for small businesses depending on industry. For example, a soybean farmer is "small" with annual receipts under $1 million, while a nuclear power generator is "small" with fewer than 750 employees.
The main types of business structures include:
- Sole proprietorship
- Partnership
- Corporation
- S corporation
- Limited Liability Company (LLC)
Coexistence with Large Firms
Small businesses coexist with large firms through:
- Competition in specific products
- Supplementary provision of components and services
- Localization close to cities
- Specialization in niche fields
- Filling small orders profitably
Common Forms of Small Business
The most common form of small business is the sole proprietorship, which is easy to form and offers complete control to the owner. Legal and tax considerations enter into selecting a business structure.
Small businesses can be classified by the number of employees, with sole proprietorships being the most localized, often catering to the immediate community.
Examples in India
Small businesses in India, typically referred to as small scale industries, manufacture goods such as pens, candles, chocolate, and toothpicks. They play a crucial role in the country’s development without major investments in machinery and plant.