Company formation.
The money needed to start a business is called capital. If a person does not have enough capital he may borrow some from the bank in the form of a loan or an overdraft. Before the bank will give a loan he must put up some security (such as his house) in case he cannot pay back the money. Security is also called collateral. If a business owned by one man (a sole proprietor) runs into trouble, the owner is liable to pay all the debts to his creditors, even if he has to sell his private possessions. A sole proprietor is personally liable to his creditors.
Sometimes two or more people own and run a business. This is called a partnership. People who invest money in a business are called investors or backers. The backers in a partnership' are all partners and owners. Usually all the partners have personal unlimited liability for debts to creditors. A partner who invests money in a partnership but who does not run the business is called a sleeping partner. Sometimes a sleeping partner can have limited liability (his liability is limited to the amount of money he invests).
All the investors in a limited company have limited liability. Investment in a limited company is in the form of shares. Everyone who buys shares in the company is a shareholder. The liability of each shareholder is limited to the amount of his investment. If a person has shares in a company, he is said to have a stake or holding in the company. If he holds 20% of the shares, he has 20% stake. If a shareholder has more than a 50% holding, he is a majority shareholder and he has a majority or controlling interest in the company.
Capital which is borrowed is called loan capital. Capital obtained from investors/investment is called share capital or equity capital. The ratio between the loan capital and the equity capital determines whether a company has a high gearing or a low gearing. A company which is highly geared has a high promotion of loan capital. A company which is low geared has propotionately more equity capital.
Trading.
A company is also called a firm or a business. While it is producing goods or trading, it is said to be a business. A firm which is just starting up is going into business and a company which stops operating goes out of business. If a company gets bigger, it expands. The expansion of a firm means it can produce more goods or sell more of its products.
A manufacturer (or manufacturing company) produces goods. The goods it makes are its products. When a manufacturing company expands, it usually increases production. If one year it produces 100 tonnes and the next year it produces 110 tonnes, it has increased production by 10 %.
A company which sells goods in large quantities (in bulk) is called a wholesale distributor (or wholesaler). A company or person buying goods in bulk (or wholesale) and selling them in small quantities is a retailer. Most local shops are retailers and sell goods retail.
Two or more companies which sell or manufacture the same product are competitors (or rivals). They are in competition and they compete for customers. In order to sell more goods than its rivals, a company must be competitive. It is important to keep ahead of the competition by selling at competitive prices. If one company has an advantage over its competitors (for example a cheaper or better product) it gives them an edge on the market.
An area where there is a demand for certain goods is called a market. A company which markets (sells) goods locally caters for the local market. Goods sold in the same country as they are produced are sold on the home or (domestic) market. A company which sells goods abroad is an exporter. An exporter (or export company) sells goods on the international (or overseas) market. The goods it exports are called exports. A company which starts selling goods overseas is said to go into exporting (or to go into the export (exporting) business). An importer buys goods abroad and imports them into his own country. The goods are then called imports and the process of importing is called importation.