Some Information about Companies

Generally speaking, a company is a form of business organization that makes or sells goods or services in order to make a profit. Generally, a company may be a corporation, partnership, association, joint-stock company, trust, fund, or organized group of persons. In English law, and therefore in the Commonwealth realms, a company is a form of body corporate or corporation, generally registered under the Companies Acts or similar legislation. It does not include a partnership or any other unincorporated group of persons.

There are different kinds of companies in respect of the area of business such as chemicals, retailing, shipping, catering, engineering, transport, banking, insurance, microelectronics, etc. Some companies are rather small-sized, they operate on a local level. Others are fairly big-sized, they have a head office in a big city and several branches in other cities or even abroad. There are international companies known as multinational corporations (MNC) or transnational corporations (TNC). Such companies represent a form of business (a corporation or enterprise) that manages production or delivers services in more than one country.

Basically, all companies could be divided into two major types: public companies and private companies. A public company usually refers to a company that is permitted to offer its registered securities (stock, bonds, etc.) for sale to the general public, typically through a stock exchange, but also may include companies whose stock is traded over the counter (OTC) via market makers who use non-exchange quotation services. The term "public company" may also refer to a government-owned corporation. This meaning of a "public company" comes from the tradition of public ownership of assets and interests by and for the people as a whole (public ownership), and is the less-common meaning in the United States. "Publicly owned company" can also have either meaning, although in the United Kingdom it will usually be interpreted as meaning a company in the public sector (being owned by national, regional or local government). The term "public limited company" or simply "PLC", as used in the UK and Ireland, refers to a form of incorporation, and does not imply anything about the ownership of the company.

Usually, the securities of a public company are owned by many investors while the shares of a private company are owned by relatively few shareholders. A company with many shareholders is not necessarily a public company. In the United States, in some instances, companies with over 500 shareholders may be required to report under the Securities Exchange Act of 1934; companies that report under the 1934 Act are generally deemed public companies. The first company to issue shares is thought to be the Dutch East India Company in 1601. A public company is able to raise funds and capital through the sale of its securities. This is the reason why public corporations are so important: prior to their existence, it was very difficult to obtain large amounts of capital for private enterprises. In addition to being able to easily raise capital, public companies may issue their securities as compensation for those that provide services to the company, such as their directors, officers, and employees.

Aprivate company also has several advantages. It has no requirement to publicly disclose much, for any financial information could be useful to competitors. It spends less for certified public accountants and other bureaucratic paperwork required of public companies by government regulations. The wealth and income of the owners remains relatively unknown by the public. While private companies may also issue their securities as compensation for services, the recipients of those securities often have difficulty selling them on the open market. Securities from a public company typically have an established fair market value at any given time as determined by the price the security is sold for on the stock exchange where the security is traded. The financial media and city analysts will be able to access additional information about the business. In the US, the Securities and Exchange Commission requires that firms whose stock is traded publicly report their major stockholders each year. The reports identify all institutional shareholders (primarily, firms owning stock in other companies), all company officials who own shares in their firm, and any individual or institution owning more than 5% of the firm’s stock.

The norm is for new companies, which are typically small, to be privately owned. After a number of years, if a company has grown significantly and is profitable, or has promising prospects, there is often an initial public offering which converts the private company into a public company or an acquisition of a company by public company. Yet, some companies choose to remain private for a long period of time after maturity into a profitable company. Investment banking firm Goldman Sachs and shipping services provider United Parcel Service (UPS) are examples of profitable companies which remained private for many years after maturing into profitable companies.

In addition, one publicly-owned company may be purchased by one or more publicly-owned company(ies), with the bought-out company either becoming a subsidiary or joint venture of the purchasers or ceasing to exist as a separate entity, its former shareholders receiving either cash, shares in the purchasing company or a combination of both. When the compensation in question is primarily shares then the deal is often considered a merger. Most industrialized jurisdictions have enacted laws and regulations that detail the steps that prospective owners (public or private) must undertake if they wish to take over a publicly-traded corporation. This often entails the would-be buyer(s) making a formal offer for each share of the company to shareholders. Normally some form of supermajority is required for this sort of the offer to be approved, but once it happens then usually all shareholders are compelled to sell at the agreed-upon price and the company either becomes a subsidiary, ceases to exist or becomes private. The shares of a public company are often traded on a stock exchange. The value or "size" of a public company is called its market capitalization, a term which is often shortened to "market cap". This is calculated as the number of shares outstanding (as opposed to authorized but not necessarily issued) times the price per share. For example, a company with two million shares outstanding and a price per share of US$40 would have a market capitalization of US$80 million. However, a company's market capitalization should not be confused with the fair market value of the company as a whole since the price per share are influenced by other factors such as the volume of shares traded.

For example, if all shareholders were to simultaneously try to sell their shares in the open market, this would immediately create downward pressure on the price for which the share is traded unless there were an equal number of buyers willing to purchase the security at the price the sellers demand. So, sellers would have to either reduce their price or choose not to sell. Thus, the number of trades in a given period of time, commonly referred to as the "volume" is important when determining how well a company's market capitalization reflects true fair market value of the company as a whole. The higher the volume, the more the fair market value of the company is likely to be reflected by its market capitalization.

Exercises

I. Translate the text. Find these words in the text and memorize them:

goods; services; to make a profit; joint-stock company; body corporate; legislation; to be incorporated/ unincorporated; head office (headquarters); enterprise; public companies; private companies; registered securities; stock; bonds; stock exchange; non-exchange quotation services; public ownership of assets; public limited company; form of incorporation; shares; shareholders; to report under; to raise funds and capital; securities; to publicly disclose; competitors; market value; to be traded; institutional shareholders; initial public offering; to convert; maturity; bought-out company; subsidiary or joint venture; entity; to enact laws and regulations; supermajority; market capitalization; volume

II. Answer the questions:

1. Could you define the term “company”?

2. What is a company according to the English law?

3. What is a big-sized company called if it operates in more than one country?

4. What is the basic classification of companies?

5. Is there only one meaning of the term “public company”?

6. If a company has a lot of shareholders, does it have to be a “public company”?

7. Which company is regarded to be the first to issue shares?

8. How can a public company raise capital?

9. Do public companies sometimes issue shares as a compensation for their staff?

10. What advantages and disadvantages does a private company have?

11. How can a private company turn into a public one?

12. Are there any cases when private companies are reluctant to become public?

13. What takes place when a publicly-owned company is purchased by one or more publicly-owned companies?

14. What is called the market capitalization of a public company?

15. What would take place if all the shareholders simultaneously tried to sell their shares in the open market?

16. What is commonly referred to as the "volume"?

Unit 2

Text C

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