Nature of Business (What It Is And What You Must Know)

What is the Nature of Business?

How do you legally define it?

What are the essential elements you should know!

Keep reading as we have gathered exactly the information that you need!

Let’s dig into our business terms knowledge!

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What is Nature of Business

The nature of business is a phrase referring to the overall purpose and existence of a company within a market sector or industry.

When we say nature of a business, we are alluding to:

  • What type of products and services are sold by a company
  • The industry in which the company operations
  • Its overall mission and purpose 
  • Other distinctive characteristics of the business

For example, to understand the nature of business, we can classify the “nature” into different categories:

  • By product or service 
  • By organizational setup
  • By organizational structure
  • By business type 

Nature of Business Definition

How do you define nature of business?

The definition of “nature of business” can vary from one person to another.

The nature of business is a statement about a company’s offering to its clients, its industry, legal structure, or any other distinctive qualities of the business.

For example, if you say a company in the “private sector”, you evaluate the nature of the company based on its nature to earn profits.

If you say that a company is the “manufacturing sector”, you refer to a company primarily concerned with manufacturing operations.

If you refer to a company as a “corporation”, you are qualifying the nature of the company by assessing its legal structure.

Let’s look at different categories in which you can classify the nature of different businesses.

Nature of Business Categories

To better illustrate the concept, we have put together a list of different ways you can view or consider the nature of your business.

Nature of business types 

The nature of business can be considered as business types.

A business type refers to the market sector in which the company operations, such as:

  • Government sector
  • Military sector
  • International sector
  • Private sector
  • Technology sector
  • Merchandising sector
  • Service sector
  • Manufacturing sector
  • Non-profit sector
  • Public sector 

Within each of these sectors, you may have subcategories.

Organization Type

Within our nature of business list, the nature of company can be viewed as the manner the company has been structured.

A company’s organizational setup can be:

  • A corporation
  • A partnership
  • A sole proprietorship 
  • A limited liability company 
  • A limited liability partnership 

The legal manner of how the business entity formed is an angle to describe the nature of your business.

Business Classification 

You can consider the “nature” of a business based on its industry classification.

The government classifies all companies into different categories.

This is useful for research and statistical purposes allowing the government to track how a specific industry or business category is doing in the economy.

There are two business classifications commonly used:

  • The Standard Industrial Classification (SIC)
  • The North American Industry Classification System (NAICS)

SIC is a classification used by the U.S. Department of Labor whereas the NAICS is a classification system jointly used by Canada, Mexico, and the United States.

Nature of Business Examples

Let’s look at a nature of business example by type of business to complete our illustration of this notion.

Service Business

A service business is a type of business that provides intangible products to its clients.

For example, the service business can be subdivided into:

  • Law firms
  • Accounting firms
  • Public relations firms
  • Medical practitioners
  • Software consultants
  • Marketing consultants
  • Banks 
  • Salons
  • Repair shops

Merchandising Business

A merchandising business is a type of business that buys products wholesale and sells them at the retail price.

Their overall objective is to sell products at a price point higher than what it cost them.

Examples of merchandising companies can be:

  • Grocery stores
  • Convenience stores
  • Distributors
  • Resellers 

Manufacturing Business

A manufacturing business is a type of business that purchases products to combine them into something new.

They transform existing products (such as raw material or other material), into manufactured goods sold to customers.

For example, a manufacturing company may purchase nuts or grains as raw commodities and produce consumer-friendly goods.


So what is the legal definition of Nature of Business?

Let’s look at a summary of our findings.

Nature of Business

  • Nature of business means how you classify or categorize a business depending on a distinctive characteristic 
  • Examples of nature of business can be by organizational setup (corporation vs LLC), by what it sells (goods vs services), by the nature of its operations (manufacturing vs merchandising) or other (profit vs nonprofit)
  • Said differently, the nature of business is a statement about a company’s main focus, legal structure or type of business 
Business definition 
Characteristics of business 
Financial independence 
Knowledge workers
Limited liability company 
Market expansion 
Nature of management 
Revenue generation
Sole proprietorship
Types of businesses