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Астраханский государственный технический университет

Кафедра иностранных языков

«Companies, shares, shareholders» (компании, акции, акционеры)

Методическая разработка по развитию навыков аннотирования и реферирования профессионально ориентированных англоязычных текстов

(для студентов старших курсов экономических специальностей)

АСТРАХАНЬ – 2002

Составители: доцент кафедры «Иностранные

языки», к.ф.н. Т.В. Дроздова,

доцент кафедры «Иностранные языки»

Н.С. Акифьева,

доцент кафедры «Иностранные языки»

Л.М. Жигульская.

Рецензент: доцент кафедры «Иностранные языки»

Г.Н. Егупова.

Методическая разработка рассмотрена и утверждена на заседании кафедры иностранных языков 30 декабря 2001 г.

Протокол № 4 .

TEXT I

COMPANIES: ORGANISATION AND OPERATION

A company is a body of persons joined together for purposes of business or trade. A company is usually formed by registration under one of the State Companies Act, but a few exist which have been formed by royal charter or by special act of parliament.

Business organisations formed as companies are most commonly limited liability companies, shareholders being limited in their liability to the amount of the capital unpaid on their shares. The company has a separate legal existence quite apart from that of its individual shareholders, and can sue and be sued in its own name.

A limited liability company may be formed as a public company or as a proprietary company. The proprietary company has a limited number of shareholders, generally not more, than fifty, excluding employees, and the rights of the shareholders to transfer their shares are restricted. a proprietary company is prohibited from inviting the public to subscribe for shares or debentures.

An exempt proprietary company, which is a proprietary company, no share in which is deemed to be owned by a public company, enjoys certain advantages. In certain circumstances, it is not required to appoint an auditor nor in certain circumstances, required to lodge financial statements with the annual return.

A proprietary company, whether exempt or non-exempt, enjoys certain advantages over a public company, although its inability to appeal to the public for funds and its restrictions on share transfers may be serious disadvantages. Proprietary companies outnumber public companies, but many are small and their shareholders are often limited to members of one family. Possible advantages of the proprietary company include the following features:

1. less formality on formation;

2. less cost involved in administration;

3. a minimum of two shareholders, whereas a public company must have at least five.

Quite commonly a proprietary company is formed to act for tax planning purposes as trustee or a family trust.

It may be noted that income tax legislation distinguishes between public and private companies. A company registered as a public company under the Companies Act is not necessarily a public company for tax purposes, and is quite possible that a proprietary company is taxed as a public company. The term ”public company” is normally taken to refer to a company formed as such under one of the State Companies Acts or the new national companies code.

A public company has “Limited” or “Ltd” as the last word in its name. A proprietary company must have the word “Proprietary” or “Pty” appearing before “Limited” or “Ltd”. The public limited liability company has become the dominant form of business organisation on the economic scene, probably because it gathers together large amounts of capital more readily than single proprietorship or partnerships.

Because of its efficiency as a device for pooling the savings of many individuals, the company is an ideal means of obtaining the capital necessary for large-scale production and its inherent economics. Virtually all large businesses are public companies.

There are many more single proprietorships and proprietary companies and partnerships than public companies, but in terms of dollar volume of output public companies hold an impressive lead. The rise of the company to this commanding position has been inseparably linked with the trend towards larger factories, stores, organized research and development of new products, nationwide marketing areas and the increasing professionalism of business management.

One of the most significant characteristics of the company is its separate legal entity. The company is regarded as a legal person, having a continuous existence apart from that of its owners. By way of contrast a partnership is a relatively unstable type of organization which is dissolved by the death or retirement of any one of its members, whereas the continuous existence of a company is in no way threatened by the death of a shareholder or stockholder.

Ownership in a company is evidenced by transferable shares or stock (but note that a proprietary company has restrictions on such transferability), and the owners are called shareholders or stockholders. To administer the affairs of the company, they elect a board of directors.

The directors in turn select a managing director and other officers to carry on active management of the business. The shareholders do not own the assets of the company, nor do they owe the debts of the company. Because the company is a separate legal entity, apart from its owners, it is capable of owning property in its own name, or borrowing money and making contracts in its own right, of hiring and firing employees, and of performing all other acts necessary to the operation of the business.

Formation of a company.

The National Companies and Securities Commission (NCSC) has been established under the new national companies code to assume responsibility for the entire area of policy and administration with respect to company law. As far as possible these administrative responsibilities are delegated to various Territory Corporate Affairs Commissions.

Companies limited by shares must file with the Corporate Affairs Commission in one of these jurisdictions, the necessary documents, including the memorandum of association, setting out:

1. The name of the company.

2. The objects of the company.

3. A statement to the effect that liability of members is limited.

4. The registered, authorized or nominal capital of the company, that is the maximum amount of capital that company is permitted to raise by the issue of shares, and the division thereof into shares of a fixed amount.

At least five persons, or, in the case of a proprietary company, at least two persons, must sign the memorandum as subscribers. Each subscriber undertakes to take up a number of shares (not less than one) in the company.

A company my also lodge articles of association with the Corporate Affairs Commission. Most companies do lodge their own articles, but if they do not do so, a set of model articles embodied in one of the schedules to the national Companies Act will apply. The articles set out regulations for the operation of the company, including share transactions, meetings and powers of directors.

Memorandum and articles are public documents and persons dealing with the company are therefore deemed to have a knowledge of their contents.

Subject to certain formalities, the Corporate Affairs Commission will issue a Certificate of Incorporation. A proprietary company may then commence business, but a public company first requires a certificate entitling it to commence business.

Organisation costs.

The formation of a company is a much more costly step then the organisation of a partnership. The necessary costs include the payment of various fees to the state, the payment of fees to solicitors for their services in drawing up the memorandum and articles of association, payments to promoters, travel expenses and a variety of other outlays necessary to bring the company into existence.

The result of these expenditures is the existence of the corporate entity; consequently, the benefits derived from these expenditures may be regarded as extending over the entire life of the company. These expenditures are recorded by debiting an intangible asset account entitled Formation Costs or Organisation Costs or Preliminary Expenses. Once the company has begun operations, there should be no further charges to this account. In the balance sheet, formation costs appear under the group heading of Intangible Assets, along with each items as goodwill, patents and trademarks.

Since formation cots are applicable to the entire life span of the company and since this is indefinite, carrying the asset formation costs at its full amount until liquidation is in prospect is in accord with accounting theory. However, most companies do amortize formation costs. Accountants have been willing to condone this practice, despite the lack of theoretical support, on the grounds that such costs are relatively immaterial in relations to other assets. Unnecessary detail on the balance sheet is always to be avoided, and there seems to be little reason for carrying indefinitely organisation costs of modest amount.

Advantages of the company.

The company offers a number of advantages not available in other forms of organisation. Among these advantages are the following:

1. Greater amounts of capital can be gathered together. Some overseas companies have one-half million or more shareholders. One Australian company has almost 200 000 shareholders. The issue of shares or stock is a means of obtaining funds from the general public; both small and large investors find stock ownership a convenient means of participating in ownership or business enterprise.

2. Limited liability. Creditors of a company have a claim against the assets of the company only; not against the personal property of the owners of the company. Since a shareholder has no personal liability for the debts of the company, he or she can never lose more than the amount of the investment in fully paid shares. This feature of limited liability is one reason why companies find it easy to gather funds from people in all economic levels.

3. Shares in a public listed company are readily transferable. The ease of disposing of all or part of one's shareholdings in a company makes this form of investment particularly attractive.

4. Continuous existence. A company is a separate legal entity with a perpetual existence. The continuous life of the company, despite changes in ownership of shares is made possible by the issuance of transferable shares.

5. Centralized authority. The power to make all kinds of operating decisions is generally lodged in the managing director of a company. He may delete to others limited authority for various phases of operations, but he retains final authority over the entire business. This clear-cut centralization of authority permits rapid decisive action and avoids the arguments and conflicts that are characteristics of a partnership, which has two or more “active bosses”.

6. Professional management. Owners need not participate in management. The person who owns a few shares in a large company usually has neither the time nor the detailed knowledge of the business necessary for intelligent participation in operating problems. One of the attractive features of share ownership is the opportunity it affords to share in the benefits of ownership without assuming the responsibilities of management. Since the functions of management and of ownership are sharply separated in the corporate form of organisation, the company is free to employ as executives the best managerial talent available.

Disadvantages of the company.

1. Heavy taxation. A company must pay a high rate of taxation on its taxable income. If part of this income is distributed to the owners in the form of dividends, the dividends are considered to be personal income to the shareholders and are subject to personal income tax. This practice of taxing income twice (first when earned by the company and again when distributed to the shareholders) is sometimes referred to as “double taxation of company profits”.

2. Greater regulation. Companies come into existence under the terms of appropriate laws and these same laws may provide for considerable regulation of the company's activities. For example, information set out in financial statements must meet requirements set by law, rather then being left entirely to the judgment of the owner. Large companies, especially those with securities listed on stock exchanges and owned by large numbers of the public, have gradually come to accept the necessity for full public disclosure of their affairs.

3. Separation of ownership and control. The separation of the functions of ownership and management may be an advantage in some cases but a disadvantage in others. On the whole, the excellent records of growth and earnings in most large companies indicate that the separation of ownership and control has benefited rather than injured shareholders. In a few instances, however, a management group has chosen to operate a company for the benefit of insiders (for example, paying excessive executive salaries and bonuses). The shareholders may find it difficult in such cases to take the concerted action necessary to oust the officers.