Of business organisation

Have you ever thought about launching a business of your own? If yes, what will your first step be? Is it a hard task or a simple one to start a business? How to start? How much paperwork is involved? What goals and objectives to set? What strategies to choose? What policy to stick to? What kind of business organisation to consider? The following information might be helpful to you in finding the answers to the set questions.

There is no better way to learn about business than to start one. A business in general can be characterised as any organisation seeking profit by providing goods and services to the economic system. A non-profit organisation also provides goods and services to the economic system, but it doesn’t consider profit to be its objective.

We should differentiate between three main types of business formation. They are sole proprietorship, partnership and corporation. A sole proprietorship has become the most common kind of business formation and is described as an organisation that is owned and managed by one person. It has a number of advantages. The first one is that a sole proprietorship is very easy to start and end. This is only you who can choose what to take up and when to break up. There is no one to consult or disagree with about such decisions. The second advantage is being your own boss, which is important for people who hate working for someone else. You make mistakes, but get excited from working for yourself.

A famous Chinese proverb says “To open a shop is easy; the difficult thing is to keep it open”. So, those proprietors who have managed to keep up with the business activity of their organisation are really proud of their work. They deserve all the credit for taking the risks and providing needed goods and services. The next obvious advantage of a sole proprietorship is retention of profit, which means that all the profit from sales (but the payment for government spending in the form of taxes) is left to an owner. A huge advantage is that a sole proprietor does not pay special taxes but the normal income tax on the profit.

Though a sole proprietorship is the most famous kind of business to organise, it has a set of considerable disadvantages. The first one is the risk of losses. You may lose almost everything working for yourself. You will have to cover the cost of supplies, borrowing, if necessary, advertising, insurance, rent etc. The only positive thing in case of failure is acquiring valuable experience in this kind of activity. The second disadvantage is unlimited liability. When you own a business you own all the debts and you should pay them at any rate even at the expense of your accommodation, car etc. You are liable for everything. One of the major disadvantages is having few fringe benefits. Being your own boss you may lose many fringe benefits coming from the work for others, such as health insurance, pensions, vacation pay etc.

The stunning thing is that the major advantage of a sole proprietorship, which is being the one and only owner of a business, can simply turn into the major disadvantage. Therefore, you have nobody to consult with or blame, if anything goes wrong. Sometimes you need good, qualified employees to work for you, but they are not really easy to find. When you feel that the stock of fresh and genius ideas for running a business has already been devastated, you find no one to help in restoring it. This is the reason why many people start seeking for partners in business.

Imagine you have been lucky to find a partner to do your business with. You may launch a partnership, a legal form of business with two or more co-owners. Your partner might be rather helpful in providing additional funds, support and expertise. The obvious advantages of this kind of business formation are having more financial resources and ease of management. Organising a partnership, one should remember to get a professional counsel and to form a partnership agreement. Speaking about financing, we have to differentiate between limited partner and general partner. The former invests money in the business, but does not have any management responsibility or liability for losses, whereas the latter has unlimited liability and is active in managing the firm. By the way, well chosen partners may ease your day-to-day activity through providing additional skills, giving more free time, if necessary and sharing more valuable experience.

Despite the fact that one head is good, but two heads are better, the possibility of conflict is inevitable. The further are the most common disadvantages of a partnership. The first disagreement between partners usually arises because of money. To minimise misunderstandings such as who hires employees, buys expensive equipment, sets wages etc., everything must be spelled out in writing.

The third main kind of business formation is corporation, a state-chartered legal organisation with authority to act, exist and have liability separate from its owners, an entity, which exists only in the eyes of the law. The process of forming a corporation is described as the process of incorporation. The corporation owners (stockholders) have limited liability, which means that they are responsible for losses only up to the amount they invest, which is considered to be a significant benefit. The other advantages of a corporation are having more money for investments, which means the ability to raise more money through selling stock to anyone who is interested; the opportunity to diversify risk, that could be explained as having the sise and resources involved in many businesses at once without being afraid of failure, because it won’t affect the total corporation much; tax advantages and the major one out of them is tax-free fringe benefits, such as retirement funds; perpetual life, because corporations are usually separate from their owners. This fact gives the possibility to change the owners through selling stock to someone else. One of the major advantages of a corporation is separation of ownership from management, which means that owners are separated from employees and managers. Shareholders (owners) elect a board of directors, directors select managers and those in turn assign duties to the employees. Therefore, the owners have a word in saying who runs a corporation, but no control.

Nevertheless, being rather beneficial kind of launching a business, a corporation has a number of disadvantages. A corporation is a very expensive business to organise, so it demands high initial cost. Running a corporation requires much paperwork, which is minutes of meetings, records etc. While incorporating, an individual must file two tax returns, an individual tax return and a corporate tax return. Huge size (not obligatory) makes a corporation inflexible according to market changes. It has to contribute to social security funds such as social security and unemployment compensation funds. One of the most important disadvantages is that double taxation is levied on corporations. Firstly, a corporation pays tax on income, before giving any to stockholders. Secondly, stockholders pay taxes on income, they receive from a corporation.

The other two forms of organising a business are cooperatives and joint ventures. A cooperative is an organisation owned by customers who pay an annual membership fee and share in any profits, if it is a profit-making organisation. A joint venture is one of the latest trends in business, when two or more corporations (usually from different countries) join together to accomplish some objective. They capture the market through cooperation and shared investment risk. It gives business people from all over the world the possibility to work together, using each other’s experience and expertise.

Task 25. Translate the sentences into English:

1. Одноосібне володіння, товариство і корпорація є основними формами організації бізнесу. 2. Кооперативи – це організації, які існують за рахунок коштів власних клієнтів. 3. Заснувати власний бізнес нескладно; складно керувати цим бізнесом. 4. Одноосібні власники не мають можливості отримувати додаткові пільги. 5. Банкрутство неминуче, якщо власник неспроможний виконати свої фінансові зобов’язання. 6. Співвласники товариства мають більше фінансових і творчих можливостей, оскільки можуть поділитися цінними ідеями і досвідом щодо керування власною справою. 7. Окремі корпорації формуються за для того, щоб займатися благодійною діяльністю. 8. Основними недоліками товариства є можливість незгоди між партнерами і складність щодо припинення роботи цієї організації. 9. Починаючи власну справу, майбутній підприємець має зважити всі переваги і недоліки форми організації бізнесу, яку він вибрав. 10. Корпоративна ієрархія включає акціонерів (власників), які обирають раду директорів, що, своєю чергою, наймає менеджерів для управління персоналом. 11. Найкращий спосіб набути потрібного досвіду для організації власної справи – попрацювати на когось іншого. 12. Акцизний збір – це спеціальна форма податку, який збирають з окремих товарів, таких, як алкоголь, тютюн тощо. 13. Іноземна корпорація повинна бути зареєстрована в країні, в якій вона здійснює свою діяльність. 14. Спільне підприємство – це об’єднання кількох корпорацій для спільної діяльності. 15. Спільні підприємства дають можливість людям з різних країн працювати разом.

Task 26. Make up a plan of the text “THE BASIC FORMS OF BUSINESS ORGANISATION” in writing.