Forms of business

Lead-in:

1. sole proprietorship – власність одної особі

2. assets –майно, активи

3. loan – позика

4. customer – покупець, замовник, споживач, клієнт

5. liability– відповідальність, забов’язання, заборгованість;

6. partnership – товариство

7. property– власність, майно

8. pool– об’єднувати

9. rіghts and duties – права і обов’язки

10. debt – борг

11. stock – акції, акціонерний капітал

The simpliest and the cheapest method of starting a business is a sole proprietorship because a sole proprietor invests his or her own capital and personal assets (anything that belongs to the person), or gets a loan from a bank. He or she alone decides what to do to achieve the objective of any business – profit.

The advantages of a sole proprietorship are:

– It is easy to start.

– It is inexpensive to start.

– It is flexible, because the sole proprietor holds all the authority.

– It is best adapted to a small business because it can provide individualized products and services to their customers.

The disadvantages are:

– It is unlimited in legal liability because the sole proprietor is personally responsible for all the debts and everything that is done in his or her business.

– It lacks stability and continuity because the sole proprietor’s disease is a threat to the business and his or her death usually stops it.

– It has a high risk of failure because the competition is usually high.

The second simple form of business organization is a partnership. In a partnership, no less than two and no more than twenty people (according to the British law) pool their property, capital (including intellectual capital), efforts, and managerial talents to do business and gain profits.

The co-owners make a written agreement regarding how to invest capital and share dividends, called an Agreement on Capital and Dividends Share. They also write a Statute of their partnership where all the rights and duties of co-owners are regulated.

The Statute is a legal document and its contents are regulated by law. At least one of the partners has unlimited liability, but quite often every co-owner is liable for all the debts of the partnership.

The advantages of a partnership are:

– It is easy to organize.

– It has potential additional sources for raising investment capital because new partners can be added.

– Every partner may act on behalf of the entire partnership.

The disadvantages are:

– The business suffers if partners have serious and constant disagreements over decisions-making.

– Senior partners have unlimited personal liability.

– In case of bankruptcy, the co-owners who invested more capital lose more than the junior partners who invested less.

A corporation (or company) is the most expensive way to organize a business. Corporations issue stock in shares, which are certificates of owing part of the corporation’s capital.

Shares certify that a definite sum of money has been invested by a shareholder, who may own one or many shares and has the right to definite annual dividends.

Stockholders (shareholders) also have the right to attend the stockholders’ meetings, which are nominally the supreme governing body of a corporation.

Corporations have great advantages that make them the strongest and most powerful form of business ensuring the greatest profits.

But there are also great disadvantages:

– It is difficult and expensive to start.

– It is difficult to control.

– It has much less freedom of operation than a sole proprietorship or partnership does.

– It has to pay corporate tax.

Ø Questions for comprehension check-up and discussion:

1. What is the simpliest and the cheapest method of starting a business?

2. What are the advantages of a sole proprietorship?

3. What are the disadvantages of a sole proprietorship?

4. What is the second simple form of business organization?

5. What are the advantages (disadvantages) of a partnership?