Forms Of Business

Sole Trader. Oldest, simplest, most common form of business easy to set up enterprise. A sole trader exists where a single person owns a business. This is very common form of organization. Over recent years, the number of sole traders has grown significantly. There are several reasons for this trend including more opportunities to work for firms on consultancy basis and government support for self-employment. Most sole traders work on their own. Initial capital – savings or borrowed. Very common in retailing, service trades. Advantages: easy to set up with little capital and few legal formalities; the owner controls the business – quick decision making; personal contact with customers; all profits belong to owner; satisfaction, motivation, interest in “Working for yourself”; business affairs are private – except far tax returns. Disadvantages: unlimited liability for any loss or debts incurred: owner is responsible or liable; cannot “Buy in bulk” and enjoy “Economies of scale”; expansions limited by available capital; division of labor is difficult; continuity is a problem.

Partnership. The minimum membership is two partners and the maximum twenty. Must be at least one general partner who is fully liable for all debts and obligations of the practice. “Sleeping partner” are not active. Partnership exist mainly in the professions – doctors, lawyers, accountants and surveyors frequently run their organization in the form of partnership. Partnerships normally operate in local or regional markets, though advanced in information technology are allowing many professions to offer their services more widely. Advantages: easy to set up; more capital with extra partners; division of labor – specialization; responsibility can be shared e.g. long working hours reduced. Disadvantages: partners have unlimited liability; disagreement can cause problems – no sole decision – maker or owner; lack of capital may still hinder expansion; profits must be shared among all co-owners; problem of continuity.

Companies. A company is defined as an association of persons that contributes money (or equivalent value in goods and assets) to a common stock, employ it in some trade or business, and share the profit or loss arising out of that business. A company has a separate legal identity form its members and can sue in its own name. There are two types of company: public companies and private companies. Both require minimum two shareholders, and there is no upper limit on the number of shareholders. All companies enjoy the benefit of limited liability. Capital is raised by selling shares.

Private limited companies. Shares can be transferred privately. All must agree. Private limited companies are suitable for small and medium-sized operations. This type of business organization is particularly suitable for family firms and for small enterprises involving just a handful of people. Private limited companies find it easier to attract capital because investors have the benefit of limited liability and this access to finance makes it simpler for the business to grow. Advantages: shareholders have limited liability; more capital can be raised; control of company held within the firm; shares are transferable. Disadvantages: profit are shared out among more people; legal procedures involve time; not allowed to cell shares to the public; restricts amount of capital raised; difficult to find a buyer if shareholder wishes to “leave”.

Public limited company. The second type of limited company tends to be larger and is called a public limited company. There are about 1.2 million registered limited companies in the UK, but only 1 per cent of them are public limited companies. However they contribute with far more to national output and employ far more people than private limited companies.

Co-operatives. Co-operatives are organized on a regional basis. Members can purchase shares and each member has one vote at the Annual General Meeting, no matter how many shares are owned. Members elect a board of directors who appoint managers to run day to day business. The Co-operative is run in the interests of its customers and part of any surplus is distributed to members as dividend. Shares are not sold on the stock exchange, which limits the amount of money that can be raised.

Charities. Charities are organizations with very specialized aims. They exist to raise money for “good” causes and draw attention to the needs of disadvantaged groups in society. They also rise awareness and pass comment on issues, such as cold weather payments, which relate to the elderly. Charities rely on donations for their revenue. They also organize fund raising events such as fetes, jumble sales, sponsored activities and ruffles. A number of charities run business ventures. Charities are generally run according to business principles. They aim to minimize costs, market themselves and employ staff. Most staff are volunteers, but some of the larger charities employ professionals. In the larger charities a lot of administration is necessary to deal with huge quantities of correspondence and handle charity funds. Provided charities are registered, they are not required to pay tax. In addition, business can offset any charitable donations they make against tax. This helps charities when raising funds.

Franchises. A franchise is not a form of business organization as such, but a way of managing and growing a business. Franchising covers a variety of arrangements under which the owner of a business idea grants other individuals or groups to trade using that name or idea. However, it is important to realize that a franchise can trade as a sole trader, a partnership or a private limited company. The legal form of business that is chosen will depend on the capital needed, the degree of risk, the number of people having a stake in the franchise and the personal preferences of the owner. The person or organization selling the idea (the franchisor) gains a number of advantages from the process of franchising. The franchisor normally receives a share of the profits generated by the franchise. Usually the franchisee benefits by being granted rights to an exclusive territory and support from the franchiser in the form of staff training, advertising and promotion. Franchising is a cheap and quick way to set up your own business.

Work with the text

• Make a plan, an outline or diagram of the text.

• Present your ideas to the group.

• Give examples of real companies using mentioned types of business.

Translate from Russian into English:

• В последние годы значительно возросло число индивидуальных маклеров.

• Партнерство существует в основном в таких профессиях как доктор, юрист, бухгалтер и инспектор – они часто организуют свою работу в форме партнерства.

• Этот тип организации особенно подходит для семейного бизнеса и для небольших предприятий, имеющих достаточное количество людей.

• Франчайзинг это не форма организации бизнеса, это способ его управления и расширения.

UNIT 2

Lead in

• Want do you know about strategic planning?

• Do you use strategic planning and just planning in your business and daily life?

• Do you think strategic planning is necessary for success in business? Why?

• What steps and rules of strategic planning can you name?

Discussion

• Divide in groups of three.

• Think of a really existing company or the company you work in.

• Give examples of strategic planning.