Types of businesses

Vocabulary

Proprietorship – власність, право власності;

Sole Proprietorship (брит.) Single Proprietorship(амер.) – одноосібне володіння;

liability – зобов’язання;

the Limited Partnership – бізнес-організація (товариство) з обмеженою відповідальністю;

treasurer – скарбник;

to presume – вважати

to reap – пожинати;

Freelancing – робота по найму.

Businesses can take a variety of forms, ranging from sole traders to public companies trading their shares on the stock market, or from a group of friends operating as a partnership to a formally established cooperative with rules and guidelines.

When choosing the format of your business you may wish to consider:

• the types of customers you want;

• whether you want people to invest in the business;

• the risks involved in providing your products or services;

• how many people are involved in the business.

Sole Proprietorship

This is the simplest and the most widely used structure for business. It is the least regulated type of the various business structures. For tax and legal purposes the business is the owner. The unlimited liability factor is probably the greatest disadvantage. The liabilities of the business are personal to the owner and the business ceases to exist when the owner dies.

Disadvantages:

· All of the personal and business assets of the sole owner are at risk in the sole proprietorship.

· A judgment against the sole proprietorship could reach into the personal assets of the sole owner.

· Liability insurance premiums are very high. Perhaps too costly for the resources of the sole owner.

· Due to the structure it may be difficult to obtain a loan. If there is insufficient collateral a sole proprietor may have to mortgage a loan or place another piece of personal property as collateral.

· When the sole owner dies often the business ceases to exist due to the lack of structure in this business form.

Advantages:

· Sole owner has total control over the operations of this business.

· Least regulated form of business.

· Other than records for tax purposes there are no legal requirements as to how the business must be operated.

· Usually one only needs to obtain a license or pay a fee to a local registering authority.

The Limited Partnership

The limited partnership is a hybrid type of business structure. It contains elements of both a traditional partnership and a corporation. The limited partnership form of business structure may be used when some interested parties want to invest in a partnership but want only limited liability and do not wish to exercise any control over the business activities of the partnership.

A limited partnership consists of two types of partners; the general partner; one or more people who actively manage the partnership; and the limited partner; one or more people who invest in the partnership but take no active role in the management of the partnership. The general partners are at personal risk for their conduct of the partnership whereas the limited partner risks only that which he has invested in the partnership.

Disadvantages:

· There is always a chance for a lack of continuity and clear cut guidelines amongst the partners concerning who does what and how to conduct business.

· Due to the state regulations, limited partnerships are subject to more paperwork than the general partnership.

· General partners maintain full personal risk. The limited partner risks losing the benefits of the limited partner status if they take any active role in the conduct of the activities of the partnership.

Advantages:

· The limited partner, as long as he remains passive, has no personal liability and risks only that which he invests.

· This low risk for the limited partner and the fact that the limited partner shares in the profits and tax deductions with no duties regarding the active conduct of business, may make it easier for the partnership to find investors.

The Corporation

Corporations are more complex than either a partnership or sole proprietorship. Corporations are incorporated businesses. Every form of business besides the sole proprietor is considered a separate entity, and this often provides a measure of legal and financial protection for the shareholders.

The shareholders of corporations have limited liability protection, and corporations have full discretion over the amount of profits they can distribute or retain. Corporations are presumed to be for-profit entities, and as such they can have an unlimited number of years with losses. Corporations must have at least one shareholder.

The internal rules of the corporation which outline the mechanics of the operation and management are called the by-laws.

Corporate Structure: A Concise Explanation

Shareholders: They own share in the business but do not engage in the direct management of the operation except by electing the directors of the corporation and by voting on major corporate issues.

Directors: They may be shareholders, but as Directors they do not own any of the business. As group known as the Board of Directors, they are jointly responsible for making the major business decision for the corporation as well as appointing the officers of the corporation.

Officers: they may be shareholders and/or directors, but, as officers, they do not own any of the business. They are responsible for the day-to-day operations of the corporate business. Usual titles for the different corporate officers are: President, vice-president, secretary and treasurer.

Disadvantages of Incorporation:

· Due to the organizational structure in a corporation, a certain degree of individual control is necessarily; lost by incorporation.

· The technical formalities of corporation formation and operation must be strictly observed in order for a business to reap the benefits of corporate existence.

· The initial state fees that must be paid for registration of a corporation can be very high.

· Profits are subject to double taxation when distributed to shareholders in the form of dividends.

Advantages of Incorporation:

· Potential for limited liability is one of the most important advantages of the corporate form of business structure. The liability of corporate debt is generally limited to the amount of money each investor has invested.

· A corporation can theoretically have perpetual existence.

· A shareholder may freely sell, trade or give away his stock unless this right is formally restricted by corporate decision.

The Limited Liability Company (LLC)

A Limited Liability Company (LLC) is a hybrid business entity, designed to combine the advantages of a corporation with the tax advantages of a partnership. Like a corporation, the owners of an LLC are not personally liable for the LLC's debts and obligations. Like a partnership, an LLC can be treated as a pass-through entity for tax purposes.

Cooperatives

A cooperative is a group of like-minded people with similar aims and business interests. Often community based, ‘co-ops’ are owned and run democratically and everyone has a say. Profits are returned to members and typically involve employee share schemes. Co-ops are frequently creative, practical or founded on ethical values.

Buying a business

Taking on an existing business may cut out some of the legwork involved in starting up on your own. But try to find an established firm with a solid customer base and a motivated workforce, rather than one with liabilities or a poor reputation. You can find a business to buy through the local press, estate agents, trade associations and websites dedicated to this sort of provision.

Freelancing

Freelancers offer a skill or service to other businesses which employ them as needed for particular projects or for set lengths of time. They may be given office space or work from home, delivering work to (often tight) deadlines.

Some freelancers actively market themselves. Others obtain work through agencies or by a direct approach from employers.

Answer the following questions:

1. Compare the advantages and disadvantages of (a) the single proprietorship, (b) the partnership, (c) the corporate form of business organization.

2. Would you rather be self-employed or be an employee?

3. How does the government control the organization of business ?

4. What are the peculiarities of Limited Liability Companies?

5. Imagine you are straining a starting a business of your own. What form of proprietorship do you prefer?

6. What is a cooperative?