Forms of bisiness ownership

The three major types of business organization in the UK, the USA and most countries are: (1) sole traders (AmE sole proprietorships), (2) partnerships and (3) companies (AmE corporations).

Sole trader (AmE sole proprietorship).A Sole trader (AmE sole proprietorship) is an unincorporated business, set up, owned and man­aged by one person, with no other shareholders. The person provides all the capital, makes his own decisions, assumes all risks, has the sole rights to all profits, and has unlimited liability for business debts, even if this means selling personal assets. Sole traders are the most com­mon and numerous form of business organization, but most are very small. The reason for their popularity is that they have the following advantages:

• Simplicity of starting and ending the business. Sole proprietor­ships are the easiest and least costly to organize. All you have to do to start a small business is get a permit or license from the local govern­ment (authorities) and buy or lease the needed equipment and prem­ises.

• Being your own boss. Sole traders are independent in making business decisions and free to make whatever changes they please.

• Retention of profit. Sole traders own all the profits of their en­terprises and they do not have to share the money with anyone else (except the government, in taxes).

• Minimum of legal restrictions and no special taxes placed on companies (double taxation). All the profits of a sole trader are taxed as the personal income of the owner. (Owners have to file an esti­mated tax return and make quarterly payments.)

• Pride of ownership. People who own and manage their own business are proud of their work. They also have the oppor­tunity to achieve success and recognition through their individual efforts.

Hundreds of thousands of new businesses are formed every year. However, thousands more fail. Many people dream of own­ing their own business, but there are also disadvantages to sole traders:

• Unlimited liability— the risk of losses. All debts, damages and problems associated with the business belong to the owner. If a busi­ness fails, the owner must personally assume the debts, even if this means the loss of personal property such as automobiles, home and savings.

• Limited financial resources. The money that a sole trader can raise is limited by the amount of his or her savings and ability to borrow.

• Difficulty in management. Many sole traders lack management resources and opportunities for employees.

• Limited life span. If the sole trader dies, the business no longer exists unless it is sold or worked by the sole trader's heirs.

• Limited size and growth. If the owner becomes incapacitated, the business often comes to a standstill. Expansion is often slow since a sole proprietorship relies on its owner's creativity, business know-how, and funding. This is why many individuals seek partners to as­sist in a business.

Partnership.A partnership is an unincoiporated business organi­zation (i.e. no separate legal identity) that is owned by two or more persons. Partnerships are governed by the Partnership Act 1890. Part­nerships are formed under verbal or written contract or agreement.

Written agreement is called «deed» or «articles of partnerships It is not difficult to form a partnership, but it is wise to get the counsel of a lawyer experienced with such agreements. Partnerships are found in all areas of business activity, especially in law, accountancy and medicine.

There are several types of partnerships: (1) unlimited partnerships (AmE general partnerships), (2) limited partnerships, and (3) master limited partnerships. A general partnershipis a partnership in which all owners share in operating the business and in assuming unlimited liability for the business's debts. There are three key elements of any general partnerships as (1) common ownership, (2) shared profits and
losses, and (3) the right to participate in managing the operations of the business. A limited partnershipis a partnership with one or more general partners and one or more sleeping or silent partners (AmE
limited partners). A general partneris an owner (partner) who ha(S unlimited liability and is active In managing the firm. A sleeping partneris a partner who invests in the firm, but does not participate in the management of the company and has limited liability — in the event of bankruptcy, a sleeping partner only loses his investment, not his personal assets. Limited liabilitymeans that sleeping (limited) partners are not responsible for the debts of the business beyond the amount of their investment — their liability (debts they must pay) is limited to the amount they put into the business; their personal prop­erty is not at risk.

A new form of partnership, master limited partnership, looks much like a company (AmE corporation) in that it acts like a company and is traded on the stock exchanges like a company, but is taxed like a partnership and thus avoids the corporate income tax.

Partnerships offer certain advantages over sole proprietorships (traders):

• More financial resources. Partners bring additional funds to the partnership. Naturally, when two or more people pool their money and credit, it is easier to pay the rent, utilities, and other bills incurred by a business. A limited partnership is specially designed to help raise capital (money).

• Shared management. It is simply much more easier to manage the day-to-day activities of a business with carefully chosen partners. Partners can bring fresh ideas and different skills to a business organi­zation.

• Little formality and expenses involved in the formation. Like sole traders, partnerships are relatively easy to form and are not subject to special taxation.

However, partnerships have disadvantages as well:

• Unlimited liability. Each general partner is liable for the debts of the firm, no matter who was responsible for causing those debts. If the business fails, its creditors (those to whom money is owed) have the right to recover their money from any, or all, of the partners.

• Difficult to terminate. Anytime a partner dies or withdraws from business, the partnership is legally terminated. If the business is to continue, a new partnership agreement must be drawn up.

• Limited capital. The amount of capital that a partnership can raise is limited by the earnings of the business, the wealth of the part­ners, and their ability to borrow. I

• Division of profits. Sharing the profits can cause conflicts among partners.

• Disagreements among partners. Partners may disagree, causing management conflictsThat could threaten the firm's existence.

Company (AmE corporation).A company (AmE corporation) is a legal entity, allowed by legislation, with authority to act and have li­ability separate from its owners. It means that company's owners, shareholders (AmE stockholders), are not liable for the debts or afly other problems of the company beyond the money they invest. Own­ership of a company is represented by shares of stock, and for that reason companyVs oty»ers are known as shareholders (AmE stock­holders). It is empowered with legal rights which are usually only re­served for individuals, such as the right to sue and be sued, enter into contracts, own property, hire employees or loan and borrow money, and it must pay taxes. Companies in the UK are created commonly by registration with the Registrar of Companies and in the USA under a government charter. There are two kinds of companies, the public limited companies (AmE open corporations) and the private limited companies (AmE closed corporations). The question of whether a company is public (with the abbreviation Pic in the company name) or private (with the abbreviation Ltd in the company name) is deter­mined by the method by which its shares are sold. Public limited companies sell their shares to the public, for example on the stock ex­change. The law requires that these public companies disclose infor­mation about their finances and operations to anyone interested in reading about them. The purpose of this legislation is to give people information about companies in which they might invest. But infor­mation that helps investors may also be of value to the competition. For that reason, some companies have chosen to remain private com­panies rather than disclose information they would prefer to keep se­cret. In a private limited company, all shareholders must agree before

ENFORCING THE LAW

In all legal systems there are institutions for creating, modifying,

abolishing and applying the law. Usually these take the form of a hierarchy of courts.

A court is a tribunal established by government to hear and decide matters properly brought before it. Laws are of little use unless they are enforced. Much of the responsibility for law enforcement belongs to courts. The judiciary, of court system, is the branch of government charged with deciding disputes among parties through the application of laws.

In the US, they have three levels of government — federal, state, and local.

In general, each level of government is most concerned with its own laws. Thus, agents of the Federal Bureau of Investigation (FBI) investigate only violations of federal laws.

Procedural law deals with methods of enforcing legal rights and duties. Laws, which specify how and when police can make arrests and what procedures can be used in a trial, are procedural laws. In contrast, substantive law defines rights and duties; it is concerned with all rules of conduct except those involved in enforcement.

There are two types of procedural law — civil procedure and criminal procedure. Criminal procedure defines the, process for enforcing the law when someone is charged with a crime. A crime is an offense against society, as well as a violation of the rights of the victim. Because a crime is an offense against society, representatives of society such as city police, the state highway patrol, or FBI agents investigate the alleged criminal conduct and try to arrest and imprison those who commit criminal acts. Other representatives of society — city prosecutors, state attorneys general, or U.S. attorneys try to convict the alleged offender during a criminal trial. The law of criminal procedure controls each of these activities.

Civil procedure is used when a civil law has been violated. Civil

law is concerned only with private offenses. These are offenses

against a particular person who has been injured. When a civil law is

violated, the injured party uses civil procedure to protect his or her

rights, primarily through a civil trial. Since civil matters involve a private offense, police and public prosecutors generally do not involve themselves in the dispute.

One act may be both a.crirne.and a civil offense. That is, one act may violate the criminal laws and at the same time violate the civil laws by causing a private injury.

Courts have the highest legal authority, they rely on the power of the prison authorities to enforce their decisions. They can authorize the detention of an individual in order to gather evidence against him, compel him to obey a court order or punish him for a crime.

There are several kinds of punishment available to the courts. In civil cases, the most common punishment is a fine, but specific performance and injunctions may also be ordered. For criminal offenses fines are also often used when the offense is not a very serious one and when the offender has not been in trouble before. Another kind of punishment available in some countries is community service. This requires the offender to do a certain amount of unpaid work, usually for a social institution such as a hospital. For more serious crimes the usual punishment is imprisonment. Some prison sentences are suspended: the offender is not sent to prison if he keeps out of trouble for a fixed period of time, but if he does offend again both the suspended sentence and any new one will be imposed. The length of sentences varies from a few days to a lifetime. However, a life sentence may allow the prisoner to be released after a suitably long period if a review (parole) board agrees his detention no longer serves a purpose.

The ultimate penalty is death (capital punishment). It is carried out by hanging (Kenya, for example); electrocution, gassing or lethal injection (U.S.); beheading or stoning (Saudi Arabia); or shooting (China). Although most countries still have a death penalty.

Supporters of capital punishment believe that death is a just punishment for certain serious crimes. Many also believe that it deters others from committing such crimes. Opponents argue that execution is cruel and uncivilized.

As the debate about capital punishment continues, the phenomenon of death row (people sentenced but still alive) increases.