UNIT 6: TYPES OF BUSINESS

ORGANIZATIONS 

Exercise 1. Read the following text and try to summarize the notion of the words
‘company’ and ‘association’: 

A company is, in general, any group of persons (known as its members) united
to pursue a common interest. The term is thus synonymous with association, but
more often it is used specifically to identify associations formed for profit, such
as the partnership, the joint-stock company, and the for-profit corporation. A
company is not necessarily a corporation, and thus may not have a separate
existence from its members. 
A company might also not be able to sue or be sued in its own name, and thus
would not be a legal person. Whether a company has either of these
characteristics depend on the law of the jurisdiction. 
Although associations of persons carrying on business must have existed from
time immemorial, the oldest continually operating business in existence is
Japanese firm Kongo Gumi, which was founded in the sixth century. 
A voluntary association (also sometimes called just an association) is a group
of individuals who voluntarily enter into an agreement to form a body (or
organization) to accomplish a purpose. 
Strictly speaking in many jurisdictions no formalities are necessary to start an
association, although it is difficult to imagine how a one-person association
would operate. In some jurisdictions, there is a minimum for the number of
persons starting an association. Some jurisdictions require that the association
register with the police or other official body to inform the public of the
association’s existence. This is not necessarily a tool of political control but
much more a way of protecting the economy from fraud. In many such
jurisdictions, only a registered association is a legal person whose membership
is not responsible for the financial acts of the association. Any group of persons
may, of course, work as an association but in such case, the persons making a
transaction in the name of the association are all responsible for it. 
Associations that are organized for profit or financial gain are usually called
partnerships. A special kind of partnership is a co-operative which is usually
founded on one man - one vote principle and distributes its profits according to
the amount of goods produced or bought by the member. Associations may take
the form of a non-profit organization or they may be not-for-profit corporations;
this does not mean that the association cannot make benefits from its activity,
but all the benefits must be reinvested. Most associations have some kind of
document or documents that regulate the way in which the body meets and
operates. Such an instrument is often called the organization’s bylaws,
regulations, or agreement of association. 
In some civil law systems, an association is considered a special form of
contract. In the Civil Code of Quebec this is a type of nominate contract. The
association can be a body corporate, and can thus open a bank account, make
contracts (rent premises, hire employees, take out an insurance policy), lodge a
complaint etc. In France, conventional associations are regulated by the
Waldeck-Rousseau law of July 1, 1901 and are thus called Association loi 1901,
except in Alsace and Moselle where the law of April 19, 1908 applies (these
countries were German in 1901). In Texas, state law has statutes concerning
unincorporated nonprofit associations that allow unincorporated associations
that meet certain criteria to operate as an entity independent of its members,
with the right to own 

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property, make contracts, sue and be sued, as well as limited liability to it
officers and members. 
Exercise 2. Complete the text using the words
below: 
bankruptcy corporations creditors issue liability losses partnership registered
shares sole trader financial premises capital prospectus files 

The simplest form of business is the individual proprietorship or (1) ...........: for

example, a shop (US = store) or a taxi owned by a single person. If several

individuals wish to go into business together they can form a (2) ...........;

partners generally contribute equal capital, have equal authority in management,

and share profits or (3) ............ In many countries, lawyers, doctors, and

accountants are not allowed to form companies, but only partnerships with

unlimited (4) ........... for debts - which should make them act responsibly. But a

partnership is not a legal entity separate from its owners; like sole traders,

partners have unlimited liability: in the case of (5) ............ a partner with a

personal fortune can lose it all. Consequently, the majority of businesses are

limited companies (US = (6) ...........), in which investors are only liable for the

amount of capital they have invested. If a limited company goes bankrupt, its

assets are sold (liquidated) to pay the debts; if the assets do not cover the
debts, they remain unpaid (i.e. (7) ........... do not get their money back.) In

Britain, most smaller enterprises are private limited companies which cannot

offer (8) ........... to the public; their owners can only raise capital from friends or

from banks and other venture capital institutions. A successful, growing British

business can apply to the Stock Exchange to become a public limited company;

if accepted, it can publish a (9) ........... and offer its shares for sale on the open

stock market. In America, there is no legal distinction between private and public

limited corporations, but the equivalent of a public limited company is one

(10) ........... by the Securities and Exchange Commission. Founders of

companies have to write a Memorandum of Association (in the US, a Certificate

of Incorporation), which states the company’s name, purpose, registered office

or premises and authorized share (11) ............ (12)............. (always with an ‘s’

at the end) - is the technical term for the place in which a company does its

business: an office, a shop, a workshop, a factory, a warehouse, etc. Authorized

share capital means the maximum amount of a particular type of share the

company can (13) ........... Founders also write Articles of Association (US =

Bylaws), which set out the rights and duties of directors and different classes of

shareholders. Companies’ memoranda and articles of association, and annual

(14). .......... statements are sent to the registrar of companies, where they may

be inspected by the public. (A company that (15) ........... its financial statements

late is almost certainly in trouble.) In Britain, founders can buy a ready-made

“off-the-shelf company” from an agent, that is, a company formed and held

specifically for later resale; the buyer then changes the name, memorandum,

and so on. 
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Exercise 3. Read the following text and list the steps in starting a business as
well as explain four elements involved in every business: 

The Steps in Starting a Business Nearly every person who makes the
decision to start a business is an entrepreneur because he or she is willing to
take a risk. Usually people decide to start a business to gain profits and to “do
something on their own” or to be their own boss. 
Entrepreneurs then gather the factors of production and decide on the form of
business organization that best suits their purposes. Anyone hoping to become
an entrepreneur must also learn as much as possible about the business he or
she plans to start. This process includes learning about the laws, regulations,
and tax codes that will apply to the business. 
Elements of Business Operation To start a business, you must make potential
customers aware that your services are available for a price. You could have
one-page fliers printed to advertise your business and pass them out. You could
also buy advertising space in the local newspaper. 
Every business, regardless of size, involves four elements: expenses,
advertising, receipts and record keeping, and risk. 
Expenses If you own a painting business, you will need to purchase brushes
and paint. As your business grows, you might invest in paint sprayers so that
you can complete jobs faster. This new equipment would add to your income,
but will probably take more money capital than you have on hand. 
Advertising You will quickly find out that letting potential customers know that
you are in business is costly. Once you have customers, however, information
about your business will spread by word of mouth. 
Receipts and Record Keeping No matter how small your business is, having a
system to track your expenses and income is key to your success. All receipts
should be safely filed and saved. 
Risk Every business involves risks. You must balance the risks against the
advantages of being in business for yourself - including profit versus loss. 
Depending on the kinds of jobs you do, you will need equipment and
replacement parts. At first, you might buy parts as you need them for a particular
job: In time, you will find it easier to have an inventory. An inventory is a supply
of whatever items are used in a business. 
Probably one of the first things you want to do, if you have not already done so,
is buy a computer. With the computer, you also should purchase the programs
that will allow you to keep track of all your expenses and all your receipts. Many
such programs exist and are relatively inexpensive. Programs write checks for
you, calculate your monthly profit and loss, tell you the difference between what
you own and what you owe (called net worth), and so on. As an entrepreneur,
you are taking many risks, but the profit you expect to make is your incentive for
taking those risks. For example, if you spend part of your savings to pay for
advertising and equipment, you are taking a risk. You may not get enough
business to cover these costs. 
Whenever you buy a special part for a job, you are taking a risk. Suppose you
do the work and your customer never pays you. You are even taking a risk with
the time you spend. You are using time to think about what you will do, to write
ads, to set up the 
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bookkeeping, and so on. This time is an opportunity cost. You could have used
it to do something else, including work for someone for a wage. If you work for
someone else, you take only the risk of not being paid, which is usually small.
As an entrepreneur your risks are great, but so are the potential rewards. 

Exercise 4. After reading the text in Exercise 3, you should be able to fill in the
missing word or words: 

People who want to start their own businesses are regarded as

(1)__________________. The first step in starting a new business is to

(2)_____ _____ _____ ______. Along with the desire to be one's own boss,

most people are motivated by the hope of gaining (3)_________________ from

the business. The second step involves gathering the (4)_______ _______

_______ and then choosing the most suitable form of (5)__________

__________. New business owners must learn all they can about the laws,

regulations, and tax codes that apply to their operation. Every business involves

four elements. Through (6)__________________, owners let others know about

the business and the services offered. Once customers know a business,

information spreads by (7)________ ________ ________. As the business

grows, there will be more (8)_______________ incurred for supplies, raw

materials, equipment, and so on. In time, an owner will want to have an

(9)___________________________ of replacement parts to make the business

(10)_________________________ for every expenditure. (11)______________

__________ will enable an owner to keep track of all transactions related to the

business. A computer and specialized software can help maintain business files.

Finally, an entrepreneur needs to be aware of the

(12)______________________ of starting a business and balance them against

the potential (13)____________________.