Forms of Business Organization

U N I T 1 PROFESSIONAL ENGLISH

F I N A N C E

Starting up

When people want to set up or start a company, they need money, called capital. Companies can borrow this money, called a loan, from banks. The loan must be paid back with interest. Capital can also come from issuing shares or equities. The people who invest money in shares are called shareholders and they own part of the company. The money they provide is known as share capital. Individuals and financial institutions can also lend money to companies by buying bonds.

Discuss the following points.

1. What is necessary to start a company?

2. What is the difference between share capital and borrowed capital?

Look through the following vocabulary notes which will help you understand the text.

A share, a stock, an equity	Акция
Share capital	Акционерный капитал
A bond	Облигация
Sole trader, sole proprietorship	Единоличное владение
A partnership	Товарищество
A legal entity, a legal body, a legal person	Юридическое лицо
An individual, a legal person	Физическое лицо
To be sued	Отвечать по иску в суде
Limited liability	Ограниченная ответственность
Unlimited liability	Неограниченная ответственность
Unanimity	Единогласие
By majority vote	Большинством голосов
A private company	Частная компания закрытого типа
A public company	Публичная компания открытого типа
A Memorandum of Association	Меморандум об ассоциации (Бр. Документ, представляемый для регистрации новой компании)
A stock exchange listing	Регистрация акций компании на бирже
Incorporation	Регистрация акционерной компании
Continuity of existence	Неограниченный срок существования
To raise capital	Мобилизовать капитал

Reading

Forms of Business Organization

Firms can be of different types and sizes. The sole trader is the simplest form of business unit and tends to be found in industries where personal service is important, where there are few advantages in large scale production and where little capital is needed to start up the business. The sole trader provides the capital to run the business, bears the risk of loss, enjoys the benefit of any profits and makes his or her own decisions. There are few legal formalities necessary to start business as a sole trader.

As a form of organization partnerships are commonly found in those professions (such as accountants and solicitors) whose rules may prevent members from forming companies. Many of the problems associated with sole proprietorship may be overcome by forming a partnership. Thus responsibility for finance, risk and work is shared.

Unlike companies, partnerships are not a legal entity. This means they cannot own property or sue or be sued in their own name. Like sole traders partners have unlimited liability for the debts of the firm. In practice this means that partners are legally responsible for both their own and their co-partners’ actions. They must choose their partners with care. The Partnership Act of 1890 lays down that

- partners will share profits and losses equally

- decisions relating to the partnership business require unanimity

- decisions relating to the day-to-day running of the business may be settled by majority vote

- all partners are entitled to be involved in the management of the business.

- There are over 1.3 mln companies registered in the UK. They vary in size from the very small with only 2 shareholders to the very large multi-national enterprise in which thousands of shareholders have invested. Companies can be private and public.

Any registered company is deemed to be a private company unless:

- the memorandum of association states that the company is a public limited company and the name includes those words (or the abbreviation plc)

- the memorandum must conform to the requirements of the Companies Acts

- the company has a minimum share capital of 50,000 pounds sterling

As opposed to public companies private companies cannot advertise the sale of their shares or obtain a stock exchange listing. Compared with sole traders and partnerships, companies have the following advantages:

- incorporation creates a new legal entity, independent of its shareholders.

- shareholders have limited liability, thus they know in advance that their liability is limited to the amount they have invested.

- the company has continuity of existence and is unaffected by the death of one of its members.

- it has greater opportunities for raising capital for expansion.

However against these advantages must be put a number of possible disadvantages:

- there is a legal obligation to disclose certain information; for example contractual powers, rules relating to the internal conduct of the business or annual reports

- there may be a divorce between ownership and control

- internal procedures may prevent the company from adapting quickly to changed market conditions

- close relationships between the company, its customers and employees are often precluded by size.

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