Exercise 7 Read the following text and describe the advantages and disadvantages of a corporation: the corporate world suppose your electronic repair business has grown.

 

You now have several partners and have turned your garage into a shop. You would like to expand and rent a store so that your business would be more visible. You would like to buy the latest equipment, charge a little less than your competitors, and capture a larger share of the market for electronic repair work. You need money capital, however. You have decided that you do not want any more partners. You would have to consult with them about every detail of the business as you do now with your present partners. What you want is financial backers who will let you use their money while letting you run the business. What you are proposing is a corporation. The following table shows the advantages and disadvantages of corporations.

ADVANTAGES DISADVANTAGES

Profits and losses Owners of the corporation – stockholders – do not have to devote time to the company to make money on their investment. Liability The corporation, and not its stockholders, is responsible for its debts. If a corporation goes bankrupt or is sued, creditors cannot normally take personal property from stockholders to pay debts. This is known as limited liability, and may be the major advantage of the corporate form of business. Management Responsibility for running a corporation is divided among many people. Decisions are made at many levels by individuals trained in specific areas, such as sales, production, and so on. This allows a corporation to handle large and complicated operations and to carry on many types of business activities at the same time. Decision making can be slow and complicated because so many levels of management are involved. Also, the interests of those running the corporation, who may not be stockholders, are not always the same as those of the stockholders, who often seek an immediate return on investment. Taxes The federal government and some state and local governments tax corporate profits. The profits that are paid to stockholders as dividends are again taxed as income to those 52 individuals. Some states also tax corporate property. Personal satisfaction An individual may feel satisfaction simply in owning a part of a corporation. Individual stockholders have little or no say in how a corporation is run. Financing growth Corporations draw on resources of investors and may issue stock at any time to raise capital. Life of the business The life of a corporation can continue indefinitely if it remains profitable. Its life is not affected by the death of stockholders. A corporation is an organization led by many people but treated by the law as though it were a person. It own property, pay taxes, make contracts, sue and be sued, and so on. It has a separate and distinct existence from the stockholders who own the corporation’s stock. Stock represents ownership rights to a certain portion of the profits and assets of the company that issues the stock. In terms of the amount of business done (measured in dollars), the corporation is the most important type of business organization in the United States today. In order to form a corporation, its founders must do three things. First, they must register their company with the government of the state in which it will be headquartered. Second, they must sell stock. Third, along with the other shareholders, they must elect a board of directors. Registering the Corporation. Every state has laws governing the formation of corporations, but most state laws are similar. Suppose that you and your partners decide to form a corporation. You will have to file articles of incorporation application with the state in which you will run your corporation. In general, these articles include four items: 1. Name, address, and purpose of the corporation; 2. Names and addresses of the initial board of directors (these men and women will serve until the first stockholders’ meeting, when a new board may be elected); 3. Number of shares of stock to be issued; 4. Amount of money capital to be raised through issuing stock. If the articles are in agreement with state law, the state will grant you a corporate charter - a license to operate from that state. Selling Stock. To continue the example of your electronic repair business, you could sell shares of either common or preferred stock in your new corporation. Common stock gives the holder part ownership in the corporation and voting rights at the annual stockholders’ meeting. It does not guarantee a dividend - money return on the money invested in a company’s stock. Preferred stock does guarantee a certain amount of dividend each year. Preferred stock also guarantees to the stockholder first claim, after creditors have been paid, on whatever value is left in the corporation if it goes out of business. Holders of preferred stock usually do not have voting rights in the corporation, although they are part owners. If your corporation were to become large, you might find its stock traded in the local stock market as over-the-counter stock. Over-the-counter means that individual brokerage 53 firms hold quantities of shares of stocks that they buy and sell for investors. Should your corporation continue to grow, it would be traded on a regional stock exchange. It might be listed as an over-the-counter stock with the National Association of Securities Dealers Automated Quotation (NASDAQ) in one of their three lists. The largest corporations are usually listed on the New York Stock Exchange (NYSE). Naming a Board of Directors. To become incorporated, a company must have a board of directors. You and your partners, as founders of the corporation, would select the first board for your corporation. After that stockholders at their annual stockholders’ meetings would elect the board. The bylaws of the corporation govern this election. Bylaws are a set of rules describing how stock will be sold and dividends paid, with a list of the duties of the company’s officers. They are written after the corporate charter has been granted. The board is responsible for supervising and controlling the corporation. It does not run business operations on a day-to-day basis, however. Rather, it hires officers for the company - president, vice-president(s) secretary, and treasurer - to run the business and hire other employees.

 

Exercise 8 After reading the text in Exercise 7, fill in the missing word or words:

 

Although a corporation is owned by many people, it is treated by the law as if it were a (1) _____. A corporation can make (2) _____, pay taxes, and own (3) _____. (4) _____ represents ownership in the corporation and a right to a portion of the (5) _____ and _____ of the company. To register a corporation, the owners must file an (6) _____ application. If it is approved, the state will issue a (7) _____, which is a license to do business. Stockholders who own (8) _____ have voting rights in the corporation. However, unlike owners of (9) _____, they are not guaranteed a dividend nor do they have first claim on corporate assets. A corporation must also select a (10) _____ and establish the (11) _____, or set of rules, in order to operate. Two major advantages of a corporation are (12) _____ for debts and the fact that it can continue (13) _____. Disadvantages are that (14) _____ is often slow and complicated because of the levels of management involved and that corporations often pay several kinds of (15) _____ on profits and income.

 

Exercise 9 Summarize the advantages and disadvantages of franchising and explain what types of businesses are involved in it:

 

FRANCHISES

Many hotel, motel, gas station, and fast-food chains are franchises. A franchise is a contract in which a franchisor (fran-chy-ZOR) sells to another business the right to use its name and sell its products. The person or business buying these rights, called the franchisee (fran-chy-ZEE), pays a fee that may include a percentage of all money taken in. If a person buys a motel franchise, that person agrees to pay the motel chain a certain fee plus a portion of the profits for as long as his or her motel stays in business. In return, the 54 chain will help the franchisee set up the motel. Often, the chain will have a training program to teach the franchisee about the business and set the standards of business operations. Advantages: As practiced in retailing, franchising offers franchisees the advantage of starting up a new business quickly based on a proven trademark and formula of doing business, as opposed to having to build a new business and brand from scratch (often in the face of aggressive competition from franchise operators). As long as their brand and formula are carefully designed and properly executed, franchisors are able to expand their brand very rapidly across countries and continents, and can reap enormous profits in the process, while the franchisees do all the hard work of dealing with customers face-to-face. Additionally, the franchisor is able to build a captive distribution network, with no or very little financial commitment. For some consumers, having franchises offer a consistent product or service makes life easier. They know what to expect when entering a franchised establishment. Disadvantages: For franchisees, the main disadvantage of franchising is a loss of control. While they gain the use of a system, trademarks, assistance, training, and marketing, the franchisee is required to follow the system and get approval of changes with the franchisor. In response to the soaring popularity of franchising, an increasing number of communities are taking steps to limit these chain businesses and reduce displacement of independent businesses through limits on «formula businesses.» Another problem is that the franchisor/franchisee relationship can easily give rise to litigation if either side is incompetent (or just not acting in good faith). For example, an incompetent franchisee can easily damage the public’s goodwill towards the franchisor’s brand by providing inferior goods and services, and an incompetent franchisor can destroy its franchisees by failing to promote the brand properly or by squeezing them too aggressively for profits. History. Franchising dates back to at least the 1850s. One early example resulted in the characteristic look of historic hotels (bars) in New South Wales, with franchising agreements between hotels and breweries. Early American examples include the telegraph system which was operated by various railroad companies but controlled by Western Union, and exclusive agreements between automobile manufacturers and operators of local dealerships. Modern franchising came to prominence with the rise of franchise-based restaurants. This trend started initially in the 1930s with traditional sit-down restaurants like the early Howard Johnson’s, and then exploded in 1950s with the development of fast food chains, of which McDonalds has been the most successful worldwide. Many retail sectors, particularly in the United States, are now dominated by franchising to the point where independently-run operations are the exception rather than the rule. 55

 

Exercise 10 After reading the text in Exercise 9, fill in the missing word or words:

A franchise is a (1) _____ in which a franchiser sells the right to use its (2) _____ and sell its (3) _____. A franchisee pays a fee plus a portion of the profits to a chain. The advantages to the franchisee are that the national chain will pay for (4) _____ campaigns that identify the franchise with the national name. The chain may also help to choose a (5) _____ for the building and arrange (6) _____ for the new owner.

 

Exercise 11 You’ll hear a recording of part of a training session for small business people on the principles and practice of franchising. Listen to the first part of the recording. Fill the gaps in this summary:

 

The franchisor usually supplies: 1. an _____ product or service and a well-known _____ image. 2. an _____ manual, showing how the business should be set up and how it must be run. 3. help, advice, and training in _____ the business. 4. continuing advice, training and support during the _____ of the franchise. 5. the _____ that’s required to set up and operate the business. 6. _____ of the product, which he will be able to _____ cheaply in _____ This may result in savings or, depending on the franchisor’s mark-up, _____ the franchisee to buying at _____ the market price. 7. local, national and even international _____.

 

Exercise 12 Listen to the second part of the recording and answer these questions about it:

1. The questioner points out that…

a. franchisees usually require varying amounts of on-going support.

b. franchisors tend to reduce their on-going support a year after start-up.

c. not all franchisors give the same quality of support.

2. She also points out that, as a franchisee, you must find out…

a. what brand image and support the franchisor is providing.

b. what level of help you will be getting after a year or so.

c. what level of help you will get when you start up the franchise.

3. In the case of problems in running the franchise, you need to know:

a. Will the franchisor be able to solve all your problems?

b. Will the franchisor provide financial support in an emergency?

c. Will you be offered regular advice by the franchisor?

4. In the answer, the lecturer points out that the franchisee should find out what help he/she will get from the franchisor…

a. in recruiting staff.

b. in training his/her present staff in new skills.

c. in training new staff.

5. You should also find out whether…

a. the franchisor will continue to research and develop the product.

b. the product has been thoroughly researched and developed.

c. the franchisor will charge you a levy for R&D.

6. You need to know whether the franchisor is…

a. continuing to advertise the product.

b. spending as much on advertising as the franchisees are charged.

c. spending enough money on advertising.

7. The lecturer goes on to say that a franchisee pays the franchisor…

a. a substantial capital sum.

b. a monthly fee.

c. both a capital sum and a monthly fee.

8. To raise money to pay for a franchise, a franchisee…

a. will probably have a lot of difficulty in getting a bank loan.

b. will probably have little difficulty in getting a bank loan.

c. must have an enormous amount of money in the bank.

9. The franchisor’s income from a franchise is calculated on the basis of...

a. the franchisee’s net profits.

b. the franchisee’s total sales.

c. the franchisee’s net monthly income from the franchise.

10. If a franchisee wants to sell the franchise to someone else…

a. he/she must have the franchisor’s permission.

b. He/she must pay the franchisor a substantial commission.

c. He/she is not allowed to do this, he/she must sell it back to the franchisor.

Exercise 13 Writing. Answer the question below on a separate sheet of paper:

Essay 1:

Some years ago you went into business for yourself as a manager of a computer firm. Business has grown to the point where you want to obtain money for expansion. What are the trade-offs in taking on a partner or forming a corporation?

Essay 2:

What are some benefits and trade-offs of a sole proprietorship? Give examples.

 

Exercise 14 Use the following clues to fill in the vocabulary terms on the grid below:

Down 2. A supply of the items used in a business 4. A temporary partnership meant to carry out a single business operation (two words) 5. A contract in which the right to use the name of a business and sell its products is sold to another business 7. The owner of a business Across 1. Some of the owners only contribute money or property to the business, while other owners manage the business (two words). 3. A business owned by one person (two words)

 

UNIT ІІ

Exercise 1 Read the text about The Centre for International Briefing, which runs training courses for business people travelling to other countries, and complete the paragraphs using the sentences below.

 

a) 'In a country like Japan, the notion of personal space which we value so much simply has no meaning,' he says.

b) In Asian cultures most of it takes place behind the scenes.

c) The difference between understanding a culture and ignoring its conventions can be the measure of success or failure abroad.

d) The Centre for International Briefing has spent 40 years preparing the wary traveller for such pitfalls.

e) John Doherty, International Marketing Director with the Irish Industrial

Development Authority, explains how you can easily talk yourself into trouble at a business meeting in Japan.

f) Greetings, gestures and terms of address are all potential hazards abroad.