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Knowing each entity in depth is very important when it comes to testing banking applications that deal with corporate customers. Corporate Customers are the ones who are neither individuals nor micro-enterprises. With years of experience in providing the best software testing services to our clients, we are well-worse with everything a team will need to know about entities. So in this blog, we will be seeing an overview of entities on the whole as we will be learning what is an entity, exploring the Different Business Entities, and will also be covering how to test its intricacies.
What is an Entity?
An entity is a registered organization that processes and provides certain services to end consumers. It has its own goals & missions and a separate existence like humans. There are key representatives called the key principles of the organization who govern the entity. Now let’s take a look at the list of the different types of entities and explore them one by one.
The Different Business Entities:
- Public Limited Company
- Private Limited Company
- Sole proprietorship
- Religious Establishment
- Statutory Corporation
- Holding Company
- Non Profit Organizations
- Investment Vehicles
- State-Owned Entity
- Charitable Organizations
- Central Bank
- Sovereign Wealth Funds
- Clubs and Societies
Public Limited Company:
A public limited company offers shares of their stock to the general public by listing it on the stock exchange. The stakeholders are the owners of a PLC. It is referred to as PLC in the United Kingdom, as Inc in the United States, and as Ltd. In India. PLC requires a minimum number of 7 members, and there is no upper limit. It should also have at least 3 directors.
Private Limited Company:
A Private Limited Company can be listed in the stock exchange or need not be. Even if they hold shares, they cannot be sold to the general public. It requires a minimum of 2 members to start the company and it should have 2 or more directors. It is called LLC in the United States, PVT in the United Kingdom, and Pvt. Ltd in India.
A Partnership is a formal agreement between 2 or more parties to manage the business and share its profit or loss. Unlike Private Limited companies, partnership firms are not separate entities. A change in the partners leads to the formation of a new partnership firm while the old partnership firm would get dissolved. There should be a minimum of 2 partners, but the number should also not exceed 50.
When a company is owned and managed by a single owner, it is called a sole proprietorship. It is unincorporated by nature, meaning this company has no separate existence by itself. It is easy and inexpensive to establish when compared to the other entities as it has fewer regulations. The biggest challenge would be raising the required capital for the business from external sources. Small business owners mostly prefer sole proprietorships.
HUF is a family business that lends a way of saving taxes by clubbing the assets owned by the members of a family. Though it is an option available only in India, we wanted to be thorough in our proceedings. The senior-most member in the family will most probably be the head of their HUF. It is governed by Hindu Law. So the death of the senior member does not affect the existence of the business, the next senior-most male member becomes head.
Temples, Churches, and Mosques are places of worship that can be termed as religious establishments. There are a lot of regulatory laws that help prevent the misuse of religious institutions as an unauthorized way of gaining money.
LLC (Limited Liability Company:
An LLC is a Legal Entity that helps its owners avoid personal responsibility for its debt and liabilities. LLCs do not pay tax as the profit or loss is passed to the owners who show it as their personal gain or loss. It is mostly incorporated, meaning the entity has a separate existence, unlike Sole Proprietary.
Statutory Corporations are companies owned by a government with the presence of other stakeholders. It is a cumbersome task to start such an entity as a lot of approvals are required. Once the policies governing this entity have been created, it is nearly impossible to change. So they are prone to wastage of capital & assets and inefficiency in operations compared to private establishments. It also suffers from political interference.
When multiple businesses are owned by a single person or by a group of people, they create a holding company which is called the ‘Parent Company’ to keep track of its subsidiaries. This holding company doesn’t usually perform any business activities, its primary purpose is to monitor the subsidiary businesses. So when the subsidiaries grow, their parent companies also grow in tandem. It receives dividends from its subsidiaries. The holding company either owns 100% of its subsidiary or at least 51% of its subsidiary to maintain control over it. This helps them to protect the interest of its subsidiary and helps to protect it from the creditors of the subsidiary to control the assets by investing less money.
Trusts are owned by Banks or Financial Institutions and act as custodian for asset management, beneficial ownership registration, and so on. It acts on behalf of its client or beneficiary to make investment-related decisions.
Funds are investment companies that focus on investing in securities. They employ portfolio managers to help manage the investment options offered by the firm.
Non Profit Organizations:
A non-profit organization can be a trust, a corporation, an association, a Limited Liability Company, or unincorporated. Since they are mainly created to serve a social cause, they will have tax exemption benefits.
To create a Non-Profit Organization, first, we have to decide if creating it as a non-profit is the right choice, create a mission statement, develop a business plan, build a board, and then file for the tax-exempt status.
An investment vehicle is a type of company that helps the investor grow their money by issuing bonds or investing in stocks or investing in real estate. Any mutual fund company that helps its investors diversify their portfolios is an example of an Investment Vehicle.
There is a special type of Investment Vehicle called the Special Purpose Vehicle (SPV). It is created by the parent company for the main purpose of undertaking some risky projects.
It is a company owned by the Government with the sole purpose of generating profits or helping the Government with certain activities that are vital to them.
It is a type of organization created with the sole purpose of aiding a social cause. It can be set up with the objective of safeguarding animals, protecting the environment, aiding in disaster recovery, and so on. The major difference between a charitable organization and an NGO is that it can run for profit. They accept funds from the general public for their survival.
Central Bank is an entity that can be seen in every country and is called the Bank of Banks. They are responsible for the formulation of monetary policies and supervising or governing the other banks. It holds the privilege to issue currency notes for the nation. It eases or tightens the supply of money based on the demand to keep a nation’s economy on the positive side. It can be a lender when any financial institutions are in trouble.
Sovereign Wealth Funds:
It is an enterprise created by the Government to invest its surplus funds from any trade or budgeting. The sovereign wealth funds then invest that money in local industries to generate the return.
Clubs and Societies:
Based on the nature of Clubs and societies, it could be a non-profit or a profit-based entity whose profits go to the owner or can be saved by the club for a rainy day. Clubs can be established for fun & recreational activities, for people with similar interests, or even for social causes. They can grow to the extent of sponsoring an event or conducting a competition.
Testing Intricacies for the Different Business Entities:
Each entity type has its own intricacies based on its purpose and objective. We have mentioned the various testing considerations below.
Setting up an entity or type of Business
- Business rules pertaining to each of the entity types
- Nature of the business
- The process to add or modify the key owners or stakeholders of the entity.
- The type of registration that is required.
- Documentation requirements for setting up the entity.
- The workflow process for the approval or verification of an entity.
- Consider the variations in the country in which the setup is made based on and the country’s risk exposure as well.
- The economic condition of the country and its impact on the setup of the entity.
- Risk definition and approval mechanisms.
- The political influence and exposure of the business. (Could be added as a part of the Business Rules)
Below are the scenarios in which Testing should be mandated:
- When we need to create or set up an entity in a system, we are required to be aware of all the above areas and it has got its own influence on the setup. The primary focus area is on the Business Rules for each type of Entity.
- When we modify an entity type, we should again be careful to test all the above areas as business rules, country exposure, etc. might have different levels of impact.
- When there is new criteria or business rule imposed by a country, we need to do a round of post regression testing as the entity level rules change.
- When Risk exposure on a firm / Country / Region changes, we have to do another round of testing.
Since these entity setups mostly require multiple levels of approval and review, most of the applications will be standard workflow products like PEGA, IBM-BPM, TIBCO Business Studio, Appian, etc.
The Benefits of a Holistic Approach to Software Testing
We hope you have found this blog to be informative and now have a clear picture of what an entity is, what the different types of entities are, and the intricacies you’ll have to know. As a leading QA company, we will be exploring such niche topics. So make sure to follow us on our social media handles to be updated with our blogs.