Pre-reading task: Skim the text and make its plan.

In business, there are many legalforms of organization. The form of organization means the type of ownership. Each form has certain advantages and disadvantages. The choice of the best form for a particular enterprise depends on its capital requirements and the number of owners. The three most common forms are the sole proprietorship, the partnership, and the corporation.

Sole Proprietorship. A sole proprietorship is a business owned and operated by a single person. This single person can start a business by simply purchasing (buying) the necessary goods and equipment and opening up shop. There are very few government and legal regulations (rules) to comply with(follow).

The sole proprietor owns all the assets of the business, but he also has to supply all the capital (money). The owner makes all the decisions about his business but he alone takes the responsibility for incorrect choices. He has the right to keep all the profits of the business, but his legal liability(responsibility) is unlimited: he must use his personal wealth (property) to settle (pay) the debts of the business if he goes bankrupt. The business itself pays no tax, but the owner must pay personal income taxes on his profits. However, if a sole proprietor wants to close his business and start a new one, he simply has to sell his inventory (products or supplies) and equipment, pay his bills, close up shop, and begin a new activity.

Partnership. A partnership consists of two or more people who share the ownership of a business.

A partnership should begin with a legal agreement called the articles of co-partnership and covering the various aspects(parts) of the business, including which assets (property) each partner is contributing (investing) andhow the partnership can be changed or terminated (ended). Partners also have to agree on how to run their business.

Partners are like sole proprietors because they own all the assets, make the decisions, and share the profits. They also have unlimited financial liability (total responsibility) in the event of bankruptcy.

But the partnership has an advantage inmanagerial ability when each partner has a different expertise(knowledge) in an important business area. Besides, the partnership usually has more capital than a sole proprietorship.

Corporation.The corporation is a legal entity(organization). As a legal entity, the corporation can own property that is not a personal wealth of its owners. It can also enter into business agreement on its own.

Forming a corporation is not easy. There are many legal procedures (steps) to follow. The ownership of the corporation is divided into shares of stock(parts of ownership). A corporation can raise large amounts of capital by selling shares of stock. The stockowners vote for a board(group) of directors who hire a president or CEO (Chief Executive Officer) to run the company. The board of directors also decides on how to use the corporation’s profits: for reinvestment or for dividends. The liability of corporation is limited tothe value of the assets of the company. If the shareholders want to go out of business, they can simply sell their shares.

The corporation’s activities are closelymonitored (watched) by government agencies. The corporation must have good organization for efficient (good) operation. Besides, its profits are taxed twice: once as corporate profits, and then the individual stockholders pay personal income taxes on their dividends (profits from stocks).

Exercise 2

a) Comprehension questions:

1. What does the form of organization mean?

2. What are the differences between the types of organization?

3. What does the sole proprietor own?

4. How many people share the ownership of a partnership?

5. What do the articles of co-partnership indicate?

6. What is the difference in the way corporation raises capital?

7. What happens to the profits of a corporation?

8. How can a stockholder terminate his interest in a corporation?

9. If a corporation goes bankrupt, how does this differ from the bankruptcy of a sole proprietorship or a partnership?

10. What problem is associated with the size of a corporation?