Forms of business in the United Kingdom.

The private sector of the economy.

The United Kingdom is a country where market economy was established centuries ago. The UK economy is mixed, that means that there exist both private and public sectors, the former being by far larger than the latter.

Neither the public nor the private sectors are homogeneous (that is of identical structure) in terms of ownership, and when discussing the problems associated with different types of ownership it is important that we specify which type we are talking about.

The classification of business forms in the private sector can be illustrated by the following scheme:

Private sector

Joint-stock company

Sole trader

(proprietor)

Partnership

General partnership

Limited partnership

Public limited company

Private limited company (Ltd)

Forms of private ownership

1. Sole trader (sole proprietor). The proprietor is the sole owner of a business and has full control of it, although there may be a number of people employed in running the business. Sole trader is personally liable for all business debts, i. e. he carries an unlimited liability. This means that if his business fails, not only business assets are to be sold to cover outstanding debt, but also the owner’s personal property. It is easy to start a sole trader’s business at any time, as there are no legal formalities to complete before commencing trade. For a small business there are no statutory requirements for formating accounting records and no need for an annual audit. In terms of taxes, sole traders may be required to register for Value Added (VAT) and pay-as-you-earn (PAYE – a system of income tax deducting and National Insurance contributions for all organizations that have employees) purposes, and maintain corresponding records. They are required to submit accounts and tax computations to the Inland Revenue – a government agency that controls individuals’ and companies’ tax payments. Sole traders and partnerships are dominant forms in the small business segment.

2. Partnership. A business run by a partnership has two or more owners. Partners jointly own a business and each partner is personally liable for the firm’s debt. When entering into a partnership an agreement is drawn up defining the rights, responsibilities and liabilities of each partner, such as how the profits are to be distributed and what part each partner is to play in managing the company. Thus, to prevent possible future discord among partners, it is usual practice to draw up an agreement that clarifies the following issues:

• profit-sharing arrangements;

• capital contributions;

• voting rights;

• admission or expulsion of a partner;

• withdrawal from a partnership.

The partners may be active, meaning that they are actively involved in the company’s business; or sleeping, which means they invest money in the company and receive a share of the profits, but do not concern themselves with the company’s business affairs.

There are two types of partnership:

1. General or ordinary partnership, where all partners have unlimited rights.

2. Limited or special partnership, consisting of at least one general partner with unlimited liability and at least one limited partner whose liability is limited to the capital he has invested. The limited partners do not run the risk of losing their personal property if the company goes bankrupt but neither do they have any say in how the business is run.

3. Joint – stock companies. From a legal point of view, a joint – stock company counts as a separate person, which means that its shareholders (owners) and directors (the people chosen by the shareholders to run the company) only have limited liability. The shareholders each receive one dividend (part of the profit) per share. There are two types of Joint Stock Company:

• Public limited company (plc)

The capital for this type of company is raised from members of the public. For this reason, a plc can be listed on the stock exchange, although it doesn’t have to be. Before it can start doing business, a plc needs to have a minimum amount of share capital (in England for example, it needs to issue at least £50,000 worth of shares)

• Private limited company

There are many more private limited companies than public companies. The shares of private limited company are held by specially chosen persons or companies, which means it can’t be listed on the stock exchange. However unlike public limited companies, private limited companies don’t need a minimum amount of share capital – its theoretically possible for a private limited company have just one share held by one person.

Here are some examples of well-known companies that are registered in the UK as Ltd. or PLC.

Private limited companies:

Du Pont, Henkel, Rhone Poulenc Chemicals, Shell, Kraft Foods, McDonalds, Nestle, Procter & Gamble.

Public limited companies:

British Airways, Marks & Spencer, Smithkline Beecham, Unilever.

2. Comprehension check.

Working in pairs, answer the following questions.

1. What does the term “unlimited liability” mean?

2. What issues should be included into the partner’s agreement?

3. What are the advantages of the company opposed to the sole trader as a form of business ownership?

4. What is the difference between the public limited company and private limited company?

3. Read the text again. Find and write down words in the text that mean the same as the following words and definitions. They are in the same order as they appear in the text.

a. to make something to exist	b. to have particular significance	c. all the businesses and services that are not owned by the government
d. industries and services that are supported by tax money and controlled by the government of a country	e. consisting of things that are similar or all of the same type	f. exactly the same
g. to explain something in an exact and detailed way	h. no longer work	i. to have enough money to pay for something that has not yet been paid
j. official demands	k. the aim that someone wants to achieve	l. formally to give something to someone so that they can make a decision about it
m. more noticeable than the others	n. involving two or more people or done by them together	o. to stop from happening a disagreement between people
p. an amount of money or something else of value that you give in order to achieve something or to help make it successful	q. the formal expression of a choice between two or more issues, people in the election	r. included in an activity, event, etc.
s. to pay attention to something because it is important	t. events and activities relating to something	u. a situation in which a business has no money and cannot pay what it owes
v. someone who owns shares in a company	w. a place where people buy and sell shares in companies	x. familiar to many people involved in a particular situation

Discussion

Work in pairs.

Using the vocabulary from the Pre – reading task, discuss with your partner:

a) If you were to start a small business such as a shop, would you prefer to do business as a sole trader, or would you go into partnership? Why?

b) Using your own words, explain the two types of joint – stock company. What do you think are the advantages and disadvantages of each? Mention some examples of joint – stock companies in your country.

Reading

1. Read text 9 about the public sector of the economy in the UK and fill each gap with one of these words.

go back competition obtains similarities owned by government notably created efficient trend benefits chairman privatization making a profit objective raised

TEXT 9