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 more efficient. State and federal tax laws require that an owner keep (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) _____.

 

TYPES OF BUSINESS ORGANIZATIONS

«off-the-shelf» company
agreement of association (company, etc.)
articles of incorporation
assets
association
bankruptcy
board of directors
bond
bookkeeping
business incubator
bylaws, statutes
CJSC (closed joint stock company)
collateral
common stock
company
competitor
contract
contractual disputes
corporate charter
corporate entity
corporation (incorporation)
costly
dividends
entrepreneur
expenses
factors of production
financial backer
financial gain
financial statement
for-profit corporation
franchise
franchise agreement
franchisee
franchisor
fraud
from time immemorial
general partnership
goodwill
individual (private entity)
inventory
investment
joint venture
joint-stock company
law of the jurisdiction
legal person (entity)
legislation
limited liability
limited partnership
LLC (limited liability company)
losses
mandatory arbitration
market share
memorandum of association
net worth
nominate contract
OJSC (open joint stock company)
opportunity costs
organization
over-the-counter stocks
partnership
personal income tax
preferred stock
premises (real estate)
profit vs loss
proprietor
proprietorship
receipts
record keeping
regulations
reward
risk
royalty fee
shares (stocks)
sole proprietorship
sole trader
startup
stock market
stockholder (shareholder)
supply
time factor
to assign
to bear risks and losses
to charge
to come to prominence
to contribute money
to evolve
to found a company
to give rise to litigation
to go bankrupt
to issue (e.g. shares)
to lodge a complaint
to make (conclude) contracts
to make a transaction
to open a bank account
to owe
to own
to pay the debts
to raise capital
to reap profits
to register a company (corporation, etc.)
to run a company (corporation, etc.)
to soar popularity
to sue (to be sued)
to terminate the contract
to track expenses
trademark
trade-off
treasurer
unlimited liability
voting rights
word of mouth

Exercise 5 Read the following text and describe the advantages and disadvantages of a sole proprietorship, explain how people can get help starting a small business, and list the advantages and disadvantages of a partnership.

 

SOLE PROPRIETORSHIPS AND PARTNERSHIPS ARE COMMON IN THE UNITED STATES TODAY

Business can be organized in the United States in a number of ways. The two most common are a sole proprietorship and a partnership.

Sole Proprietorship

The most basic type of business organization is the sole proprietorship, a business owned by one person. It is the oldest form of business organization and also the most common. The colonies of Maryland and Pennsylvania were founded as sole proprietorships. When we speak of a proprietor, we are always referring to the owner of a business. The word proprietor comes from the Latin word proprietas, meaning «property.» A business is a kind of property.

Today, the United States has about 14 million such businesses, and many of them are small. For that reason, they usually are easier and less expensive to start and run. You probably have contact with many sole proprietorships every day without realizing it - owners of corner grocery stores, repair shops, dry cleaners, and so on. Many doctors, dentists, lawyers, and accountants are sole proprietors. In farming, construction, and contracting, sole proprietorships are the most numerous types of business organization. The following table shows advantages and disadvantages of a sole proprietorship.

ADVANTAGES DISADVANTAGES

Profits and losses

+ As sole owner, the proprietor receives all the profits because he or she takes all the risks.

- Losses are not shared.

Liability

- The proprietor has complete legal responsibility for all debts and damages brought upon oneself in doing business. This is known as unlimited liability. If the firm is unable to pay its bills or if someone is injured as a result of the business, the proprietor can be forced to sell his or her personal assets as well as the business to pay these debts. Assets are items of value such as houses, cars, jewelry, and so on.

Management

+ Decisions on starting and running the business can be made quickly because the owner does not have to consult with other people. Because a proprietorship is usually small, the operation of the business is less complicated than other types of business. There are generally fewer government regulations than with corporations. -A proprietor must handle all decision making, even for unfamiliar areas of the business. For example, the owner of a manufacturing firm may know a great deal about product design, but very little about selling. This is a severe problem for many sole proprietorships.

Taxes

+ A proprietor must pay personal income taxes on profits, but these taxes may be lower than taxes for a corporation.

Personal satisfaction

+ The proprietor has full pride in owning the business. The person is his or her own boss and makes the business whatever it is.

-Running a sole proprietorship is demanding and time-consuming. If the proprietor does not enjoy such responsibility, he or she will find ownership a burden. Financing growth

+Because the proprietor has liability for all debts, it is occasionally easier for a proprietorship to obtain credit than for a corporation of the same size. Lenders are more willing to extend credit knowing that they can take over not only the assets of the business, but also the assets of the proprietor if the loan is not paid back.

-A sole proprietor must rely on his or her own funds plus money that can be borrowed from others. Borrowing small amounts may be easier for a sole proprietorship than for a corporation of similar size, but borrowing large amounts can be difficult.

Life of the business

+ A sole proprietorship depends on one individual. If that person dies, goes bankrupt, or is unwilling or unable to work, the business will probably close. This uncertainty about the future increases the risk to both employees and creditors. Help in starting a small business For a person who wants to start a sole proprietorship, help is available. The federal government’s Small Business Administration often helps finance startups, which are new small businesses. State departments of commerce and community affairs also offer assistance. Many community college and university campuses have federally funded small business development centres that will help a small business get started. A small business incubator might also aid businesses. Just as incubators help hatch chickens, there are business incubators that help «hatch» small businesses. They are often operated with state and federal funds. A small business incubator might provide a low-rent building, management advice, and computers. The incubator’s goal is to generate job creation and economic growth, particularly in depressed states. Partnerships To take the example of your repair business a little further, suppose that your business is doing so well that your workload has increased to the point at which you have little time for anything else. You could expand your business by hiring an employee. You also need financial capital, but would rather not take out a loan. You may look into taking on a partner. You decide that the best solution is to look for someone who can keep books, handle customers, and invest in the business. You offer to form a partnership. A partnership is a business that two or more individuals own and operate. You may sign a partnership agreement that is legally binding. It describes the duties of each partner, the division of profits, and the distribution of assets should the partners end the agreement. Many doctors, dentists, architects, and lawyers work in partnerships. Two or more people often own small stores. The following table lists some of the major advantages and disadvantages of partnerships. ADVANTAGES DISADVANTAGES Profits and losses Losses are shared. Several individuals can sometimes survive a loss that might bankrupt a sole proprietor. Because partners share the risks of the business, they also share the profits. Liability Partners as a group have unlimited 49 liability for all debts and damages incurred in business. If a partner is unable to pay his or her share of a debt, the others must make up for the difference. Management Partnerships are usually more efficient than proprietorships. They allow each partner to work in areas of the business that he or she knows most about or is best at doing. Decision making is often slow because of the need to reach agreement among several people. Disagreements can lead to problems in running the business. Taxes Partners must pay personal income taxes on their share of profit. These taxes are sometimes lower than those for a corporation. Personal satisfaction Partners, like sole proprietors, often feel pride in owning and operating their own company. If partners do not get along with each other, trying to work together can result in constant arguments. Financing growth A partnership combines the capital of two or more people. It makes more money available to operate a larger and perhaps more profitable business. Because the risk is shared, creditors are often willing to lend more money to a partnership than to a sole proprietorship. Like sole proprietorships, partnerships can have trouble obtaining large amounts of capital. The amount that partnerships can borrow is usually limited by the combined value of the assets of the business and of the partners. Life of the business If one partner dies or leaves, the partnership must be ended and reorganized. The others may be unable or unwilling to continue operating, and the business may close. This uncertainty is a risk to employees and creditors. Limited Partnerships. A limited partnership is a special form of partnership in which the partners are not equal. One partner is called the general partner. This person (or persons) assumes all of the management duties and has full responsibilities for the debts of the limited partnership. The other partners are «limited» because all they do is contribute money or property. They have no voice in the partnership’s management. The advantage to the limited partners is that they have no liability for the losses beyond what they initially invest. The disadvantage, of course, is that they have no say in how the business is run. Limited partnerships must follow specific guidelines when they are 50 formed. Two or more partners must sign a certificate of limited partnership in which they present, at a minimum, the following information: · The company name · The nature of the business · The principal place of business · The name and place of residence of each partner · How long the partnership will last · The amount of cash or other property contributed by each partner Joint Ventures. Sometimes individuals or companies want to do a special project together. They do not have any desire to work together after the project is done. What they might do is form a joint venture. A joint venture is a temporary partnership set up for a specific purpose and for a short period of time.

 

Exercise 6 After reading the text in Exercise 5, you should be able to fill in the missing word or words:

 

Physicians, writers, and local grocery store owners often do business as (1) _____. The owner of the business is known as a (2) _____ and accepts all the risks and rewards. One advantage of this form of business is that the owner may find it easier to obtain (3) _____ because the business serves as (4) _____ for loans. Pride of ownership is balanced by the fact that running a business is very (5) _____ Also, borrowing (6) _____ can be difficult, which may create a shortage of funds. If the owner dies or is unable to work, the business may be forced to (7) _____. Such uncertainty increases risks to both (8) _____ and _____. Small business startups can be financed by the federal government’s (9) _____ or by state departments of (10) _____. In some cases, universities or colleges have (11) _____, whose goals are to foster job creation and (12) _____. If a business grows rapidly, an owner may form a partnership with two or more people. These people sign a (13) _____ that is legally binding on all parties. If one partner provides money but does not help manage the business, the arrangement is known as a (14) _____ In other cases, a partnership known as a (15) _____ may be formed for a specific purpose. Advantages of a partnership include the fact that losses are (16) _____, partnerships are generally more (17) _____, the owners pay (18) _____ only on their share of profits, and often more (19) _____ are available to finance growth. Disadvantages include (20) _____ on debts and the fact that: if one partner dies, the business must be (21) _____.