The Types and Purposes of Commercial Enterprises

to assume - брати (на себе)

entrepreneur - підприємець

liability - відповідальність, зобов'язання

to incur - підпадати, зазнавати

net income - чистий прибуток

to cease to exist - припинити існування

entity - буття, суть

medium - засіб, спосіб

heirs - спадкоємці

proxy — уповноважений

purchase - покупка, купувати

Business may be organized as a) an individual enterprise; b) a partnership; c) a department of government; d) a corporation; e) a co­operative association.

In the individual enterprise one person assumes the responsibility for the setting up and operation of a business. Among single entrepreneurs are farmers, professional men, small storekeepers, and small manufacturers. In a market economy, individual proprietorship can be formed with a minimal interference. In town a license is often required. The individual proprietor assumes liability for all debt obligations that his business incurs. The individual owner may have a slight tax advantage in that he pays taxes on net income from his business.

Two or more individuals may join together to form a partnership. Sometimes a silent partner is permitted to join the firm. He will furnish capital funds and participate in the profits or losses, but not in its operations. The main weakness of a partnership is that its members are subject to unlimited liability. The partners are responsible for all the debts that the business incurs with both their personal properties and the property of the partnership. Again, when one of the partners dies or leaves the partnership, the firm legally ceases to exist. Partnerships have a better chance of obtaining capital funds for operating purposes than do individual enterprises. Many law and accounting firms, and most stock brokerage firms are partnerships.

Largely because of the inability of individual firms and partnerships to finance big business, the corporation has come into being as the form of business enterprise. A corporation is defined as an artificial person created by law for some particular purpose. It has a name, an entity, and an existence of its own, quite from the people who have bought stock on it.

The corporation has certain important advantages for the investor. First of all, corporation shares can be quickly bought and sold. This is done through the medium of the stock exchange.

The person who wants to buy a corporation stock today has a great variety of issues from which to choose and at a great variety of prices. The sensible investor reduces his risk considerably by putting his money into several corporations engaged in different kinds of enterprises and perhaps located in different parts of the country.

A very fortunate feature for an investor in a stock is that his liability is limited to the amount of his investment in the business. There is no danger of loss of other property belonging to a shareholder through a failure of a company. A corporation is, itself, a legal person and its stockholders are not its agents, not are they bound to it by any legal obligation other than that of paying for the full subscription value of the stock.

An advantage of the corporation is the permanence of its existence. The death of one or even a hundred shareholders may have no appreciable effect on the progress of the corporation. Their holdings pass into the hands of other persons, and the business continues to follow its usual routine. Corporations possess longevity, whereas the individuals who own them are constantly passing from the scene and turning over their shares to their heirs or to the saving classes of the oncoming generation.

The shareholders have stock certificates as evidence of their partial ownership in the corporation. Those certificates entitle them to attend the annual meeting and vote for directors. If there are five directors to be elected and the stockholder has one hundred shares, he will have five hundred votes. Quite often he votes by proxy, since it is inconvenient for him to be present at the shareholder's meeting. Sometimes he is asked to approve some important matter such as the disposal of some or all of the corporation's property or an increase in the amount of the company's capital stock. Each year he is entitled to receive a financial statement from the directors and, most important of course, he gets dividends when they are declared. Most companies pay dividends quarterly, but in some cases payments are made only twice a year. Sometimes a company is unable to pay dividends because of low earnings for several years. This is unfortunate for shareholders, but there is not much they can do about it-except perhaps sell their shares, but probably at a considerable loss.

But there is such a thing as public or government ownership of certain types of business enterprise. Our postal service, for example, is owned and operated by the national government because it is so vital to the welfare of our people.

The basic purpose of most types of business organization is to make a profit. Cooperative societies are intended to provide services for their members and are owned by these members. Cooperative societies are engaged in various kinds of activities, including selling or buying commodities through marketing and purchasing associations; manufacturing corporations; life, casualty, fire and hall insurance; medical services; rural electrification; housing projects; cooperative farms. People have been engaged in co­operative activities for a long time.

Agricultural co-operatives comprise the largest share of the cooperative movement of the world. Fishermen market their products through the co­operative plan. Prices and incomes have risen sharply since the cooperative idea entered the fishing business. Cooperative stores sell food, dry goods and hardware. Farmers and city people are both included in these co­operatives which have a membership of several thousand.

QUESTIONS AND TASKS

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

2. List ways of raising capital for small, medium and large business.

3. Imagine you are starting a business of your own. Write its case history.