Nature of business: Overview, definition, and example
What is the nature of business?
The nature of business refers to the type, scope, and purpose of a company’s operations or activities. It defines what a business does, the industry it operates in, and the products or services it provides. This term is often included in legal documents, contracts, or business plans to establish the fundamental identity and objectives of the company.
For example, the nature of a business for a bakery would involve the production and sale of baked goods, such as bread, pastries, and cakes, to customers.
Why is the nature of business important?
Defining the nature of business is important because it provides clarity about the company’s operations, objectives, and role in the market. For SMBs, specifying the nature of business helps stakeholders, such as investors, customers, and partners, understand what the company does and its value proposition.
In contracts, the nature of business ensures alignment between parties, reduces misunderstandings, and provides a reference point for assessing whether the company’s activities align with its stated purpose or obligations.
Understanding the nature of business through an example
Imagine an SMB operates a landscaping service. The nature of business for this company is described as “providing residential and commercial landscaping services, including lawn care, garden maintenance, and landscape design.” This description ensures that partners, customers, or regulators clearly understand the scope of the company’s operations.
In another scenario, a startup defines its nature of business as “developing and selling mobile applications that improve personal productivity and task management.” This definition is included in the company’s bylaws and used as a guide when seeking investors or entering contracts.
An example of a nature of business clause
Here’s how a nature of business clause might appear in a document:
“The Company’s nature of business is defined as the development, production, and distribution of organic skincare products, including creams, lotions, and soaps, for retail and wholesale markets. The Company may also engage in related activities consistent with its primary business purpose, as permitted by applicable law.”
Conclusion
The nature of business establishes the core purpose and activities of a company, providing clarity for stakeholders and guiding business operations. For SMBs, clearly defining the nature of business in contracts or legal documents ensures transparency, aligns expectations, and supports compliance with industry and regulatory standards. Including this definition helps businesses communicate their identity and focus to partners, customers, and other stakeholders effectively.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.