Types of businesses. (Environment, 2.3)

Businesses determine much of how the economy operates. Main types of business in nowadays economic world are sole proprietorships, partnerships, public and private limited companies (corporations in the USA), and cooperatives.

Many entrepreneurs start their own business as sole proprietorships. A sole proprietorship is a one –owner business. The advantages of sole proprietorships: they are easy to organize, decisions can be made quickly, owners receive all profits. But sometimes a sole proprietor may have difficult problems in starting a business, because one person has limited resources to start and operate a business.

A sole proprietorship also must deal with the problem of unlimited liability. If the business fails, the owner must pay the debts and his personal property can be taken to pay the debts.

To increase their chances of success entrepreneurs choose partnership, it is an association of two or more people in order to run a business. Partnerships are easy to organize, decisions can be made quickly, profits are shared with only a few people. Owners are responsible for success or failure of the business and they have equal authority in management.

Liability is unlimited. Partnerships also have limits life. If one partner dies, the business must be dissolved.

The majority of businesses are limited companies (US - corporations), in which investors are only liable for the amount of capital they have invested. If a limited company goes bankrupt, its assets do not cover the debts, they remain unpaid.

Often one person does not have enough money to start a business. Combining the resources of a number of people and forming a corporation is a way to raise the large amount of money needed.

Advantages: a corporation has limited liability, so if the corporation goes bankrupt, the stockholders lose only the value of their stock. Corporations have the ability to raise very large amounts of money and they use this money to change models, replace equipment, and build new factories. Also they can raise money by selling bonds and stocks. Corporation has an unlimited life and ownership transfer is easy.

But there are some disadvantages: complex forms must be filed with the state or federal government, a corporation's profits are subject to double taxation, in corporations with many owners or stockholders the individual share of profits in the form of dividends is small, a corporation's owners do not directly control the business.

A cooperative is an organization that is owned or managed by the people by the people who use its services or by the people who work there.

15. Private Company: The structure of the authorised capital. Risk of a take-over. (Harper & Grant Ltd. overcomes the risk of a take-over and ensures the favourable redistribution of the share capital). (L of B, Unit 1,13, 17)

A private company can be formed by two or more people. They sign a Memorandum of Association, stating the number of shares they agree to take.

The authorised capital consists of market value of all the shares issued.

If any person owns 51 per cent of the shares he would have a controlling interest, and would be in a good position to take over the firm.

H&G is a private company. The balance of power was upset after Ambrose Harper’s death. Wentworths, a large and successful firm, owning 10 per cent of H&G shares, had an opportunity of buying some of the shares belonging to Harper. If Wentworths owned 51 per cent of the shares they would be in a good position to take over H&G, making it a fully owned subsidiary.

Hector Grant and Peter Wiles' mother has 20% of the capital each. Ambrose Harper - 50 %, 10% in the hands of Wentworth. Hector Grant does not want Alfred Wentworth to own the controlling interest of the shares. He raised a personal short-term loan to outvote Wentworth.

16. A private company: Raising and granting loans. (Harper & Grant Ltd. overcomes the risk of a take-over and ensures the favourable redistribution of the share capital). (L of B, Unit 13, 17, 21)

Harper&Grant Ltd is on the verge of the biggest crisis in the history of the firm. The shares of the company are distributed so that Peter Wiles’s mother and Hector Grant own the lion’s share with 20%. Ambrose Harper has left much money to form a trust and actually money to his sister. H.G. and his colleagues have to raise a loan and buy enough of the shares to keep the controlling interest. The total share capital must have a market value about five hundred thousand $ when Ambrose Harper died. A bank officer thinks HG can’t provide security since the loan is required by good self of Mr Grant. Mr Brewer should have to apply to head office but they wouldn’t grant a loan without some form of security. The deads of house of Mr Grant are a perfect guarantee for this. For that, there is an opportunity to raise a second mortgage on the property. In this case, Mr Grant could have a straight loan and pay 2% of bank rate and the rate of interest actually would be 9%. It would be a short term loan for three years.

Grant decides to do the accounts more often than HG does at present. Quarterly accounts don’t allow them to keep a close enough control. If profitability goes down, that is profits in relation to sales turnover or in relation to capital employed, it may be necessary to increase prices, cut costs and so on. Each manager would be responsible for at least one cost centre. He would be required to forecast willing advance, the income and the expenditure of the centre. Then approved budgets become the annual budget or the plan of the company.

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