3.Types of securities.

Securities are financial instruments that represent some amount of financial value. They generally take the form of a certificate that grants the holder the rights to participate in the profit distributions of a business.

Security indicates either an ownership position in a corporation (a stock), or a creditor relationship with a corporation or a governmental body (a bond), or rights to ownership, represented by option, subscription right or warrant. Common types of securities are stocks, bonds, and options.

Shares are certificates representing part ownership of the company.

To buy into the company, a shareholder must purchase shares on the stock exchange. Shareholders earn return in two ways: the company makes regular dividend payments, the shareholders may take capital gains (or losses).If the company suffers a loss or goes bankrupt then the shareholders can lose only the value of their stocks.

There are ordinary shares, and preference shares or preferred stock. Holders of preference shares receive a fixed dividend that must be paid before holders of ordinary shares receive a dividend. Holders of preference shares have more chance of getting some of their capital back in the case of bankruptcy.

A bond is a certificate that promises to pay the holder of a bond (investor) a certain amount of money on a certain date. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities.

Another type of securities is option – it’s a contract giving the holder a right to buy a designated security or sell it at a certain period of time at a specified price.

4. Mergers, takeovers & acquisitions. (Environment, 2.6)

Companies are bought and sold on a daily basis. There are some types of sale agreements:

mergers - two companies come together, blending their assets, staff, facilities and so on to form a new firm.

Takeover – acquisition of controlling interest in firm. So, the purchasing company owns all of the target company’s assets and takeover its management.

The acquisition happens when a company offers to buy all the shares of the company with cash, with stock or a combination of the two. This is called a takeover bid.

If a Board of Directors of target company agrees to a takeover, it becomes a friendly takeover. Takeover which is carried out against wishes of the board is a hostile takeover.

Companies have various ways of defending themselves against a hostile bid. For instance, they can try to find another company that they preferred to be bought by.

Sometimes the companies choose issuing new shares at a big discount, which reduces the holding of the company attempting the takeover, and makes the takeover much more costly.

5. Advantages and disadvantages of small businesses.

Small businesses are managed by their owners and have a relatively small share of the market. Small manufacturing firms employ fewer than 200 people. Large firms are typically incorporated (limited companies), where ownership and management are separated. Large companies that exploit economies of scale enjoy a cost advantage over small firms in the same industry. In particular, large firms have access to the following technical and financial economies. Technical economies occur in the production of a good.

As the firm expands, there is greater scope for specialization and the division of labour. Large factories can employ specialist skilled workers to do the same job all day with no time lost in changing tools or doing unfamiliar tasks. The indivisibility of certain types of capital means that many production processes are impossible on a small scale. Large firms can benefit by linking production processes that would otherwise be carried out in separate factories.

Financial economies allow large firms to raise capital on advantageous terms. Large firms are considered to be reliable and are therefore charged a low rate of interest and have access to capital markets such as the stock exchange. Selling shares is a relatively inexpensive method of raising large amounts of capital.

Despite the cost advantage to large firms of production in bulk, small businesses find a niche by providing specialized products for small markets (e.g. hairdressing cannot easily achieve a large scale of operation, and tends to be dominated by small firms.) An irregular or limited demand for a product prevents mass production. Small firms have the required flexibility and low overheads. Often small firms survive by accepting subcontracting work from large companies. In printing, where fixed costs form only a small percentage of total costs, low set-up costs encourage the development of small firms. Where the market for a good is restricted and highly localized, small firms survive, e.g.village shops.

In an attempt to stimulate the supply side of the economy the government has introduced a number of schemes to help small firms to survive: the Enterprise Allowance is a weekly sum paid to the unemployed while they are setting up their own businesses; the Business Expansion Scheme provides relief against income tax to investors in unquoted companies.