Forms of Business Organization

Text 1

READING

DISCOVERING CONNECTIONS

COMPANY STRUCTURE

1. Which types of business are popular in your country?

2. What kind of company would you like to work for: state-owned, private limited company, multinational cooperation, etc.? Why? Give your reasons. Some people compare a small company to a family. In your view, is this analogy valid and useful? What are the benefits and risks of viewing a company as a family?

3. What do you think your fist position will be? What are the qualities of an effective team player? What qualities could you contribute to a company after getting a degree?

While reading the text, focus on the forms of business organization and pay attention to their advantages and disadvantages.

A business organization is frequently referred to as a business entity. A business entity is any business organization that exists as an economic unit. The business entity concept applies to all forms of businesses, single proprietorship, a partnership, and a corporation.

A sole proprietorship is a business owned and usually operated by a single individual. Its major characteristic is that the owner and the business are one and the same. In other words, the revenues, expenses, assets and liabilities of the sole proprietorship are also the revenues, expenses, assets, liabilities of the owner.

Advantages

A sole proprietorship is the easiest form of business to organize. The only legal requirements for starting such a business are a municipal licence to operate a business and a registration licence to ensure that two firms do not use the same name. A sole proprietorship can be dissolved as easily as it can be started. A sole proprietorship offers the owner freedom and flexibility in making decisions. Major policies can be changed according to the owner's wishes because the firm does not operate under a rigid charter.

Disadvantages

The financial condition of the firm is the same as the financial condition of the owner. Because of this situation, the owner is legally liable for all debts of the company. If the assets of the firm cannot cover all the liabilities, the sole proprietor must pay these debts from his or her own pocket. A sole proprietorship, dependent on its size and provision for succession, may have difficulty in obtaining capital because lenders are leery of giving money to only one person who is pledged to repay. A proprietorship has a limited life, being terminated on the death, bankruptcy, insanity, imprisonment, retirement, or whim of the owner.

A partnership is an unincorporated enterprise owned by two or more individuals. A partnership agreement, oral or written, expresses the rights and obligations of each partner. There are three types of partnerships: general partnerships, limited partnerships, and joint ventures. The most common form is the general partnership, often used by lawyers, doctors, dentists, and chartered accountants.

Advantages

Partnerships, like sole proprietorships, are easy to start up. Partners' interests can be protected by formulation of an “Agreement of Partnership”. This agreement specifies all the details of the partnership. Complementary management skills are a major advantage of partnerships. Consequently partnerships are a stronger entity and can attract new employees more easily than proprietorships.

The stronger entity also makes it easier for partnerships to raise additional capital. Lenders are often more willing to advance money to partnerships than to proprietorships because all of the partners are subject to unlimited financial liability.

Disadvantages

The major disadvantage of partnerships is that partners, like sole proprietors, are legally liable for all debts of the firm. In partnerships, the unlimited liability is both joint and personal. This means that the partners together are responsible for all the firm's liabilities. If one of the partners cannot meet his or her share of the debts the other partner(s) must pay all debts.

Partnerships are not as easy to dissolve as sole proprietorships.

Limited companies, unlike proprietorships or partnerships, are created by law and are separate from the people who own and manage them. Limited companies are also referred to as corporations. In limited companies, ownership is represented by shares of stock. The owners, at an annual meeting, elect a board of directors which has the responsibility of appointing company officers and setting the enterprise's objectives.

Advantages

Limited companies are the least risky from an owner's point of view. Shareholders of corporations can only lose the amount of money they have invested in company stock. If an incorporated business goes bankrupt, owners do not have to meet the liabilities with their own personal holdings. orporations can raise larger amounts of capital than proprietorships or partnerships through the addition of new investors or through better borrowing power.

Disadvantages

Limited companies are subject to federal and provincial income taxes. Dividends to shareholders are also taxed on an individual basis. Thus, limited companies are taxed twice: on the profits they earn and on the dividends which come out of the profits. In proprietorships and partnerships earnings are only taxed once – as the personal income of the individuals involved.

With diverse ownerships, corporations do not enjoy the secrecy that proprietorships and partnerships have. A company must send each shareholder an annual report detailing the financial condition of the firm.

Vocabulary Focus

Ex. 1. Study the meaning of the following words agency; branch; enterprise; subsidiary, then use them to fill in the gaps:

agency – a business or place of business providing a service

branch – a local office belonging to a national firm or organization

subsidiary – firm owned by a parent company

enterprise – new commercial activity, often a small one.

1. Coca-Cola has a(n)… in more countries than there are in the United States.

2. A travel… can organize business trips as well as holidays.

3. A(n) … is a company of which more than half the share capital is owned by the holding company.

4. The major banks have at least one… in all large cites.

5. There are plenty of small industrial ….

Ex. 2. Fill in the missing words from the text.

1. A business organization is frequently referred to as a business…

2. A single proprietorship is business … by an individual and often … by the same individual.

3. The major disadvantage of partnerships is that partners are legally liable for all … of the firm.

4. The partners together are … for all the firm’s liabilities.

5. Partnerships are not as easy to … as sole proprietorship.

6. In limited companies, ownership is represented by….

7. A board of directors has the responsibility of setting the enterprise’s …

8. If an incorporated business goes …, owners do not have to meet the liabilities with their own personal holdings.

9. Limited companies are … to federal and provincial income taxes.

10. Limited companies are … twice.

Ex. 3. Match the words in column A with their antonyms in column B.

A	B
1) borrow (v)	a) income (n)
2) expenses (n)	b) lend (v)
3) liabilities (n)	c) fail (v)
4) survive (v)	d) revenue (n)
5) costs (n)	e) insider (n)
6) dissolve (v)	f) assets (n)
7) lender (n)	g) start up (v)
8) outsider (n)	h) borrower (n)

Ex. 4. Match the words in column A with their English equivalents in column B.

A	B
1) фондовая биржа 2) акционер 3) ценные бумаги 4) акция 5) право собственности 6) доход 7) ответственность 8) кредитор 9) пассивы 10) активы 11) дебитор 12) страхование 13) расходы 14) организация	a) assets b) entity c) expenses d) insurance e) lender f) liability g) liabilities h) ownership i) revenue j) securities k) shareholder l) share m) borrower n) stock exchange

Ex. 5. Fill in the missing word(s) in each of the following sentences. Choose from the alternatives beneath each sentence. The first has been done for you.

1. The Board of Directors is responsible for deciding on and controlling the strategy of a corporation or company.

a. workers; b. directors; c. cooperative.

2. Small businesses depend on investors providing.................capital.

a. venture; b. individual; c. cooperative.

3. Investors are influenced by the projected ………….. on their capital.

a. market; b. return; c. rate.

4. Thecapital needed to run a business is provided by.....................

a. a gain; b. risk; с. investment.

5. Rent and rates, which do not change as turnover volume changes, make up the............. costs of a company.

a. fixed; b. contribution; с. variable.

6. Materials and direct labour costs, which change as turnover volume changes, make up the …………….. costs of a company.

a. fixed; b. marginal; с. variable.

7. Every company must watch its …………… carefully if it is to avoid bankruptcy.

a. market manager; b. cash flow; с. production line.

8. The.................. account above whether the company is profitable or not.

a. profit and loss; b. volume; с. shareholder.

9. Banks, require................. to guarantee а lоаn.

a. account; b. shares; c. securities.

10. The Stock Exchange deals with the purchase and sale of....................

a. stocks and shares; b. bulls and bears; c. statements and invoices.

Ex. 6. Express in one word.

1. Having a responsibility or an obligation to do something, e.g. to pay a debt;

2. a person or organization to whom money is owed (for goods or services rendered, or as repayment of a loan);

3. to be insolvent: unable to pay debts;

4. everything of value owned by a business that can be used to produce goods, pay liabilities and so on;

5. to sell all the possessions of a bankrupt business;

6. money that a company will have to pay to someone else (bills, taxes, debts, interest and mortgage payments, etc.);

7. money invested in a possibly risky new business;

8. the place in which a company does business: an office, shop, workshop, factory, warehouse, and so on;

9. to guarantee to buy an entire new share issue, if no one else wants it;

10. a proportion of the annual profits of a limited company, paid to shareholders.

Words for reference: dividend; premises; underwrite; liabilities; venture capital; liquidate; bankrupt; liability; creditor; assets.

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