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Forms of Business Ownership

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Business is a commercial enterprise performing all those functions that govern the production, distribution, and sale of goods services for the benefit of the buyer and the profit of the seller. Since the beginning of the era of economic progress old ways of running business have been modified, and new forms of business organization have been introduced.

This has enabled various branches of industry to adapt to changing conditions and to function more easily, efficiently and profitably, sole proprietorship, partnership, and corporation being the main three forms of business ownership.

A sole proprietorship is a business owned by one person, in which all the, profits belong to the owner, the latter being fully responsible for the success and the failure of the business. Unless an activity is specifically prohibited by law, no field of business is closed to an owner. Although advantages for the small business exist in this form, certain drawbacks make it undesirable for larger concerns. In the first place, the single owner is seldom able to invest as much capital as can be obtained by a partnership or a corporation. If single owners are able to invest large amounts of capital, they run great risk of losing their business. It is due to unlimited liability that all the personal assets of the owner, including his home and car, can be sold to settle the debts of the business. Unless the owner has much personal wealth, the business may have difficulty borrowing money in critical time. A sole proprietorship may also have difficulty hiring and keeping good employees, because the business will dissolve when the owner retires or dies.

A partnership is an association of two or more persons who have agreed to combine their financial assets, labour, property, and other resources as well as their abilities and who carry on business jointly for the purpose of profit. The agreement the partners usually sign to form an association is known as a partnership contract and may include general policies, distribution of profits, responsibilities.

Like the sole proprietorship, the partnership is easy to establish, and its profits are not subjected to federal corporation taxes. Financing is generally easier profits are easier to obtain because the personal assets of the group are usually larger and the chances of success are higher. The major disadvantage of the partnership is unlimited liability of each partner for the debts of the business, that is, complete financial responsibility for losses. Furthermore, partners who wish to retire may find it difficult to recover their investment without dissolving the partnership and ending the business.

A business corporation is an organization created by law that allows people to associate together for the purpose of making profit. Corporations are also known as joint-stock companies because they are jointly owned by different persons who receive shares of stock in exchange of the company’s assets such as cash, equipment, real estate, manufactured goods, etc.

Though the corporation is more difficult and expensive to organize than other business forms, it has a number of advantages. First, investors can limit their personal liability to the amount of money they have invested, thus, if the corporation goes bankrupt, they can lose no more they have put in. Second, money to operate the business is obtained by the sale of stocks to the general public and this enables the corporation to exist independency of its owners. The corporation also finds it easier to borrow money from banks and it is also a successful means for attracting large amounts of capital and investing the latter in plants, modern equipment and expensive research. Salaries large corporations can offer to managers and specialists are high and that allows corporations to hire, professional and talented employees. The great drawback of the corporate form of ownership is double taxation or profits which mean that business corporations must pay taxes on their net income, and then the shareholders are to pay taxes on the income they receive as dividends on their stock. Different kinds of reports to be filed to federal and state regulatory agencies about the corporation activity can also he considered as another disadvantage of this business form. However, in terms of size and influence il is the corporation that has become the dominant business form existing in most countries with free market economy.

3. Find in the text Forms of Business Ownership synonyms or Ukrainian equivalents of the following words or word combinations.

advantage; disadvantage; in order to have profit; to employ smb; to be fully responsible for smth; to forbid smb smth. to get (dividends) (2); to take chances; smb's property; a consumer; to carry out functions; to operate a business; to end the business; to let smb do smth (2); to be pensioned off; to spread profits; full financial liability (2); to get back investments; a corporate performance; to set up a partnership (2); to own smth together; to pay debts; produced commodities; to restrict liability; to involve large amounts of capital; the main business form; to pay taxes twice; something unwanted; to provide reports.

4. Answer the questions to the test Forms of Business Ownership.

1. What are the main reasons of developing different forms of business ownership?

2. What is a sole proprietorship?

3. Are there any limitations as to the field of activity of a proprietor?

4. What are the main disadvantages of a sole proprietorship? Why do you think this form of business is very risky?

5. What items are usually included in a partnership contract?

6. What are the similarities and differences between a sole proprietorship and a partnership?

7. What is a business corporation and who are stockholders?

8. What is considered to be the major advantage of the corporation?

9. What does double taxation of profits mean?

10 How can large amounts of money attracted by a corporation be used?

5. Translate the following sentences from English into Ukrainian, which contain grammatical and lexical structures:

1. It is the partnership form of the ownership that makes it possible for two or more persons to combine their financial assets, property and a variety of abilities for obtaining higher profits.

2. If one of the partners retired, it would be difficult to determine and to recover his share in the business,

3. Two individuals are likely to possess more capital than a sole proprietor; individuals’ chances of borrowing capital being also better, provided partners’ reputations are good.

4. Being the oldest and the simplest form of business organization, the sole proprietorship is unlikely to account for a considerable share of all businesses operating in the market.

5. Corporate profit taxes having been paid on the net income, stockholders must pay taxes on their incomes.

6. The greater amount of money a stockholder has invested the higher dividends he will expect to obtain.

7. Having purchased shares of the company, the investors receive stock certificates as evidence of their ownership.

8. Each form of ownership possessing both benefits and drawbacks, one should consider all aspects before making a decision.

9. The credit available from a banker for the business expansion is known to be limited by the assets belonging to the business.

10. The corporation is sure to have become the main economic institution, though it is not the dominant form of business organization.


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