The Three Sectors of the Economy.

Land -includes everything contained in the earth or found in the seas. Labo r -refers to all the people who work. Labor includes full- and part-time workers, managers, and professional people in both the private and public sectors. Capital -includes money to start and oper­ate a business. Entrepreneurship -refers to the skills of people who are willing to invest their time and money to run a business. Information – exchange of knowledge, intangible. Economics is a social science studying economy. Economics tries to find laws or principles by building models. Microeconomics studies how government activities such as regulations and taxes affect individual markets. Macroeconomics is the branch of economics that studies the economy as a whole. The economy is the realized social system of production, exchange, distribution and consumption of goods and services of a country or other area. Economic infrastructure is: 1) the basic physical and organizational structures and facilities (e.g., buildings, roads, and power supplies) needed for the operation of a society or enterprise.2) the stock of fixed capital equipment in a country, including factories, roads, schools, etc., considered as a determinant of economic growth.

I) Based on ownership, the economy may be subdivided into:

The public sector is the part of economic and administrative life that deals with the delivery of goods and services by and for the government, whether national, regional or local/municipal.

•Direct administration funded through taxation; the delivering organization generally has no specific requirement to meet commercial success criteria, and production decisions are determined by government.

· Publicly owned corporations hich differ from direct administration in that they have greater commercial freedoms and are expected to operate according to commercial criteria, and production decisions are not generally taken by government (although goals may be set for them by government).

•Partial outsourcing (of the scale many businesses do, e.g. for IT services), is considered a public sector model.

The private sector is that part of the economy which is both run for private profit and is not controlled by the state.

The voluntary sector (also non-profit sector) is the sphere of social activity undertaken by organizations that are non-profit and non-governmental.

II) Based on the type of product produced: Agricultural sector, Industrial sector, Service sector/

The three-sector hypothesis is an economic theory which classifies modern economies based on the stage in the production chain into three major broad sectors of activity: Primary sector of the economy: extracts or harvests products from the earth. Secondary sector of the economy: manufactures finished goods. Tertiary sector of the economy: Involves the provision of services to general population (consumers) and to businesses, such as baby-sitting, cinema and banking. In most developed and developing countries, a growing proportion of workers are devoted to the tertiary sector.

The distribution of the workforce among the three sectors progresses through different stages as fallows, according to Fourastié: First phase: Traditional civilizations Workforce quotas:Primary sector: 70%,Secondary sector: 20%,Tertiary sector: 10% Second phase: Transitional period → advanced industrialised countriesWorkforce quotas:Primary sector: 20%,Secondary sector: 50%,Tertiary sector: 30% Third phase: Tertiary civilization Workforce quotas:Primary sector: 10%,Secondary sector: 20%,Tertiary sector: 70%

Though various empirical studies appear to support the three-sector hypothesis, four inaccurate predictions can be identified in Fourastié’s The Great Hope of the Twentieth Century:

According to Fourastié, the transition from the secondary to the tertiary sector should eliminate unemployment, since in his view the tertiary sector is unlimited in size. But unemployment was increasing. Fourastié believed that there would be no states in which the secondary sector remained strongly represented even after a highly developed third phase had been reached. Fourastié believed that the tertiary sector would always require an extremely high level of education of the workforce. However this is not the case. Fourastié believed that workers’ wages would be harmonised at a high level in tertiary economies, but this has not happened. In fact the change has been in the opposite direction: the wage gap is continually increasing in most OECD countries. (Organisation for Economic Cooperation and Development)

According to other viewpoints there are some more sectors of economic activity. Quaternary sector of the economy: Involves, the research and development needed to produce products from natural resources. (A logging company might research ways to use partially burnt wood to be processed so that the undamaged portions of it can be made into pulp for paper.) Note that education is sometimes included in this sector.The quaternary sector of the economy consists of intellectual activities. Activities associated with this sector include government, culture, libraries, scientific research, education, and information technology. Quinary Sector: Some consider there to be a branch of the quaternary sector called the quinary sector, which includes the highest levels of decision making in a society or economy. This sector would include the top executives or officials in such fields as government, science, universities, nonprofit, healthcare, culture, and the media.

Modern tendencies in manufacturing process. Opinions concerning advanced industrialized countries and post-industrial countries. Two hundred years ago, the vast majority of the population of virtually every country lived in the countryside and worked in agriculture. Today, in what many people call ‘the advanced industrialized countries’, only 2-3 % of the population earn their living from agriculture. But some people already talk about ‘ the post – industrial countries’, because of the growth of service industries, and the decline of manufacturing, which is moving to ‘ the developing countries’.Well known Canadian economist John Kenneth Galbraith think that it is not possible to stop the declining of manufacturing, because this process is inevitable.

Production

Production is the process of making things. So factors of production are resources necessary to produce a product: 1. Labor: All aspects of human effort expended(затраченный) in producing a good or a service| 2. Land: All of the natural resources used to produce smth else.(ex., soil, minerals, forests, waters). 3. Capital: Those buildings, pieces of machinery, and tools which man has fashioned to help him produce still more goods and services. 4. Entrepreneurship refers to the skills of people who are willing to invest their time and money to run a business. Entrepreneurs orga­nize factors of production to create the goods and services that are part of an economy. They are the employers of a population.

Each factor of production or each owner of the factor of production receives a share of the final product.

II Manufacturing companies require three basic functions: finance, production and marketing. Finance raises the capital to buy the equipment to start the business, production or operations makes the product, and marketing sells and distributes it.

Objectives of production are to produce specific product at minimum cost. Some of these objectives are clearly incompatible and most companies have to choose between price, quality and flexibility. There is an elementary trade-off between low cost and quality, and another between low cost and the flexibility to customize products or to deliver in a very short lead time. (3 фазы по плану)

Production and operations management involves parts, which are raw materials or supplies, the process itself, that is the steps by which production and services are carried out, and planning and control system, the procedures used be management to operate and monitor the system. But it also involves people, the personnel or human resources, who will always be necessary in production and operations, despite increasing automation, especially in organizations offering a service rather than making a product.

Manufacturing companies also have to decide how much research and development (R&D ) to do. They have to decide if they should do fundamental or applied research themselves, or use research institutes and independent research laboratories, or simply license product or service designs from other organizations.Companies are faced with this problem for every item, process or service.

III Location After it has been decided what to manufacture, operations managers have o decide where to manufacture the different products, how much productive capacity their factories and plants(the buildings, machines, equipment and other facilities used in the production process) should have, and how much inventory to maintain.

IV Capacity is the maximum rate of output that can be achieved from a production process. Spare capacity (резервная мощность) implies that production can be easily increased if necessary.(производство можно увеличить, если это необходимо.) Where firms have equipment, which is too unlikely to be needed to be worth maintaining(поддержание), there is excess capacity (избыточная производственная мощность). If a factory works in this amount they say that it works at full capacity. Spare capacity is often a good thing, implying that production can easily be increased if necessary. If far too many things are produced we say that there is a glut(перенасыщение) of these things. If not enough goods are being produced we say that there is a shortage. As a result of insufficient capacity the lead time may become too long and it’ll allow competitors to enter the market or some customers will go to other suppliers. As a result you’ll loose sales.

V Inventory is the stock of any item or resource used in an organization including raw materials, parts, supplies, work in process and finished products

2. There are obviously advantages to having a large inventory because it gives you protection against temporary price rises, incorrect or defective shipment(отгрузка), the advantage of quantity discounts in purchasing. But on the other hand, keeping an inventory involves various costs. Storage(хранение) requires warehousing facilities(склад. Помещений), handling goods involves labor costs, and unsold goods have to be insured. Furthermore, there is always a risk of obsolescence (устаревание), especially for high – tech products. If an inventory of finished goods gets too large, it may be necessary to reduce prices to stimulate demand.

VI JIT system means that each section of the production process makes the necessary quantity of the necessary units at the necessary time. It minimizes the cost of holding inventories, allows increase productivity, note product defects more quickly, reduce production lead time, and also it allows react more rapidly to demand changes. The just-in-time regards inventories as avoidable costs, rather than as assets. The advantages are that: 1) it makes production operations more efficient, cost effective and customer responsive 2) it helps prevent manufactures from being stuck with inventory that may become obsolete 3)JIT is lowering costs and inventory, reducing waste, and raising the quality of products. Disadvantages such as first of all, a weakness in the supply chain. JIT processes can be risky to certain business and vulnerable(уязвимы) to the supply chain(поставок) in situations such as labor strikes, stock outs, lack of communication and so on.

VII Quality Besides, not all products should be produced with JIT system in place. It is very necessary to know that an important concept has been Total Quality Management (TQM), according to which management should ensure(обеспечить) that quality extends (простираться) throughout the organization in everything it does, or at least in all features of products and services that are important to the customer. In total quality management every worker is a quality inspector of his own work trying to get right the first time, aiming zero defects. Many Japanese companies have been able to attain high quality, because of the motivation of their staff and long-term nature of relationships among employees, supplies, distributors, owners and customers. Mainly Japanese invented so called quality circles (QC) – task group designed for highly participative activity on the part of group members(8-12). It is based on voluntary participation. They meet once a week on company time for one-half to one hour, with pay; they are trained in the techniques of problem solving. A circle exists as long as the members wish to meet. So these people choose the problem and try to solve it. QC is not the only way to do things in right way. There some other methods. For instance, benchmarking – a system of comparing the performance of the company to other organizations in this field. The best practice is to try to copy methods of work of the best organization.

Continuous improvement is making small improvements or enhancements, or for example business process re-engineering, when you don’t want to change things in small ways, but completely redesign all processes in management, administration and customer service.

So it’s for you to decide what method to choose. The most important thing is to produce right enough goods of good quality with minimum costs to please customers with the low price and high quality, thus having a worthy market share.

 

 

Promotional tools and advertising

I The basic idea behind the 'marketing concept' - that you make what you can sell rather than sell what you make - does not mean that your product will sell all by itself. During the introduction and growth stages of the standard product life cycle, the producer (or importer) has to develop product or brand awareness, that is to inform potential customers (and distributors, dealers and retailers) about the product's existence, its features, its advantages, and so on.

II Promotional strategies is designed to inform, persuade or influence us to purchase a good or a service.

1) A push strategy is a promotional effort that persuades middlemen (посредник) to sell a product aggressivel y. This strategy relies heavily on personal selling to wholesalers and retailers, and influences them by providing promotional allowances for displays, special discounts, brochures, posters, and cooperative advertising, an arrangement whereby the manufacturer shares the cost of local advertising. This push strategy is especially important to companies competing in markets, such as food stores where shelf-space is very restricted.

2) An alternative strategy is the pull strategy, which is designed to stimulate consumer demand for products and services through the use of advertising and sales promotion. The idea is to persuade the ultimate consumer (конечный потребитель) to request a specific product from retailers so that the middlemen will be forced to carry it. This strategy is commonly used for health care products, books, and records.

3) Positioning is a promotional strategy that focuses on specific market segments. Market research identifies the market segments that will most likely purchase a product; that product is then differentiated from the competition and promoted with the appropriate market image. Product differentiation is accomplished(завершенный) by distinguishing the characteristics of one product from another by such things as brand name, package, package design, capabilities, color, logo, taste, and price.

III According to the well-known 'Four Ps' formulation of the marketing mix (product, place, promotion and price), this is clearly a matter of promotion. As budgets are always limited, marketers usually have to decide which promotional tools - advertising, public relations, sales promotion, or personal selling - to use, and in what proportion.

III Public relations (often abbreviated to PR) is concerned with maintaining (поддержание), improving or protecting the image of a company or product. The most important element of PR is publicity.Many companies attempt to place stories or information in news media to attract attention to a product or service.

IV Sales promotions such as free samples, coupons, price reductions, competitions, and so on, are temporary tactics, designed to stimulate either earlier or stronger sales of a product. Free samples, for example, (combined with extensive advertising), may generate the initial trial of a new product.

V Personal selling is the most expensive promotional tool, and is generally only used sparingly (расчетливо), e.g. as a complement to advertising. Personal selling is a form of interpersonal communication designed to inform and induce a prospective customer to make a purchase. The major advantage of personal selling over the use of mass media is flexibility. Personal selling allows the salesperson to demonstrate, answer questions, overcome objections, and predict possible customer problems.

VI Advertising informs consumers about the existence and benefits of products and services, and attempts to persuade them to buy them.

There are two types of advertising: 1) Product advertising is designed to promote a product or product line. Product advertising can be primary or selective. The aim of primary advertising is to stimulate an increase in the sale in a class of goods without regard to brand. These ads are usually run by trade associations or unions. The aim of selective advertising is to persuade consumers to purchase a specific product. This is the type of advertising you commonly find on newspapers and magazines, and on radio and television. 2) Institutional advertising is designed to promote an image or goodwill message of a company, industry, organization, or government

Although large companies could easily set up their own advertising departments, write their own advertisements, and buy media space themselves, they tend to use the services of large advertising agencies. These are likely to have more resources, and more knowledge about all aspects of advertising and advertising media than a single company. The most talented advertising people generally prefer to work for agencies rather than individual companies as it gives them the chance to work on a variety of advertising accounts – the contracts to advertise products or services. The agency creates advertisements (adverts, ads or commercials on television and radio ), and develops a media plan-specifying which media – newspapers, magazines, radio, television, cinema, posters, mail, – will be used and in which proportions.

Виды рекламы!

1) Newspapers +:1) It reaches large portions of a local market.2)its relative low cost per thousand.3)they are timely

2) Television offers many advantages to advertisers:1) is the number of potential viewers who have TV sets and is the number of times a message can be run. 2) it is demographically selective, which means it is relatively easy to reach a target market. 3)TV has superior product demonstration capability because of its visual dimension. ---: 1) its high absolute cost: small companies simply cannot afford to buy TV time. 2) is clutter (помехи на экране) and noise level.

3) Direct mail is the third most commonly used advertising medium. It includes letters, catalogs, postcards, folders, and other forms of “junk mail”. The major advantage of direct mail is the possibility to obtain immediate orders or inquiries from customers. But we should take into account that it’s very expensive: it includes the cost of purchasing mailing lists and the cost of postage.

4 ) Radio +: 1) it is demographically selective.2) radio has universal availability and high message frequency.3) radio commercial is best suited for simple messages that do not require product demonstration.

As for disadvantages of radio they include clutter(беспорядок), low-reach, and the short life of messages. In addition to it, there occurs the necessity to purchase more time on several radio stations to attain the same coverage as one TV station.

5)Magazines They have a longer life than newspapers, and they can offer reproduction and repeated exposure. Magazines offer a number of attractive graphic options such as centerfolds bleeds (a picture that covers an entire page) and inserts.

6)Outdoor advertising is a million dollar industry that includes billboards, skywriting, placards, neon signs and a new technique using lasers. Two basic types of outdoor advertising are the poster panel and the printed bulletin. Poster panels are the billboards we are most used to seeing. It demonstrates the visual picture of the ads. In contrast to it, printed bulletins that are used to advertise shows, records, and premiere movie runs in other words it draws people’s attention to the printed advertisements without a picture enclosed. The main advantage of outdoor advertising is the repetition it offers and rather low costs if comparing with TV or direct mail. A disadvantage - lack of visibility if the billboard is in an area that is not lit at night and relatively limited reach and low frequency.

Internet Advertising

8) Word-of-mouth ad, which occurs when people tell their friends about the benefits of products or services rely on this alone, but use paid advertising instead.

The agency's media planners have to decid e what percentage of the target market they want to reach How much to spend on advertising is always problematic. Some companies use the comparative-parity method - they simply match their competitors' spending, thereby avoiding advertising wars. Others set their ad budget at a certain percentage of current sales revenue. But both these methods are regardless (не стоящий внимания) to the fact that increased ad spending or counter-cyclical advertising can increase current sales. On the other hand, excessive advertising is counter-productive because after too many exposures people tend to stop noticing ads, or begin to find them irritating. And once the most promising prospective customers have been reached, there are diminishing returns: an ever-smaller increase in sales in relation to increased advertising spending.

 

Bonds

Market is a set of conditions permitting buyers and sellers to work together. There are two types of markets according to the character of concluded contracts: 1. Spot market is the buying and selling of goods, currency or securities that are available for immediate delivery. 2. Futures market is the buying and selling of goods, currency or securities for delivery at a future date for a price fixed in advance. Also, there are three types of markets according to their function: 1. Сommodity markets/exchanges are the places where raw materials and some manufactured goods are bought and sold for immediate or future delivery, 2. Foreign exchange markets are the markets where foreign currencies are traded, 3. Stock markets/exchanges are the markets where stocks and shares are bought and sold under fixed rules, but at prices controlled by supply and demand. The main idea of stock exchanges is to attract capital.

There are three types of speculators "bulls", "bears" and "stags". A bull is a buyer who buys like this in the hope of a rise in prices. Bears are pessimistic speculators who expect a fall in share prices. Stags are speculators who operate in the "new issue" market. He does not want to keep the shares, or invest in the company that is issuing them, but simply to make a profit out of the issue.

Generally, security/stock/ financial markets could be classified: According to territory: international, national/domestic, regional; According to the number of transferrings: Primary markets issue and trade new securities, an investor who purchases new securities is participating in a primary financial market; and secondary markets which trade previously issued securities, an investor who resells existing securities is participating in a secondary financial market. The development of the secondary market provides for liquidity and reducing the risks of investments. According to the company status and place of sale there are two basic types of stock markets – organized exchanges, like the New York Stock Exchange (NYSE) or the London Stock Exchange (LSE) which trade listed/quoted securities for/of successfully growing companies and the less formal over-the-counter markets that sell and buy unlisted securities for/of smaller and newer companies. In contrast to the organized security exchanges, the over-the-counter market (OTC) is an intangible organization that sells and buys unlisted securities outside of the organized securities exchanges. It is a network of security dealers who buy and sell securities from each other, either for their own account or for their retail clients. The prices of the securities are established by supply and demand. According to tendencies: a bear market when share prices fall because there are more sellers than buyers and a bull market when share prices rise because there are more buyers than sellers. According to maturity: money markets which deal in short –term securities having maturities of one year or less capital markets which deal in long-term securities having maturities more than one year.

Security is a fungible (взаимозаменяемый), negotiable (свободнообращающийся) instrument representing financial value. Securities can be classified: 1. According to the form of raising the capital (financing): Debt securities (bonds). It’s a promise by the company or government to pay back a certain amount of interest over a definite period of time.; Equity securities (shares). A share gives its holders the part of ownership of a company. 2. According to the issuer: Industrial and commercial; Government; Municipal; 3. According to the form of issuing: Scrip(документарные); Inscribed(недокум-ые); 4. According to the holder: Registered; Bearer; Order; 5. According to the term of circulation: Long-term; Short-term; 6. According to the resource the security is based on:primary are shares and bonds; secondary are options and warrants 7. According to the investment qualities: Liquidity; Risk involved; Yielding.

Bonds can be defined as securities issued by companies, governments and financial institutions that promises to pay individual or other investors – providers of funds – and generally provide for a fixed rate interest and a date in the future at which the money will be returned. The main difference of bonds from stocks is that they have a certain future pay-off (a fixed rate of interest) and they are repaid after a fixed period.

If company need more money they can either sell shares or borrow, usually by issuing bonds. More and more companies now are issuing their own bonds rather than borrow from banks, becouse this is often cheaper.

As for different types of bonds they may be classified: 1. According to the term of circulation: Long-term (government -> gold-edged / gilt-edged / gilts (GB) or Treasury Bonds (US);Short-term. 2. According to the term of maturity: Long-term; Short term; Middle term. 3. According to the holder: Registered; Barer certificates 4. In terms of interest rate: convertible bond is exchangable for equity or stock. It looks like an ordinary bond, it has a final maturity date, but also has a feture that permits the holder to redeem it for shares in the borrower. (Облигация, выпущенная акционерным обществом, которая по желанию покупателя может быть обменена на определенное количество акций компании по фиксированной ставке); Junk bonds high yield securities issued by companies that are seen to have a very high risk of default; Floating rate notes (краткосрочное долговое обязательство, ставка процента по которому периодически пересматривается) 5. by issuer: government; finance; company. 6. by interest charge methods: Simple – means the interest is charged on the principle no matter the term is long or short; Compound – means the interest generated of the one term is added into the principle and the new interest will be calculated against the total of interest and principle in the last term in the rolling way term by term; Discount – mean that no interest rate is regulated on the face.The bonds are issued with the discount price lower than face value; Accomulative (based on accomulative rate year by year) 7. By bonds forms: physical; certificate;booked.

Most bonds are bearer certificates, so after being issued (on the primary market), they can be traded on the secondary bond market until they mature. Bonds are therefore liquid, although of course their price on the secondary market fluctuates according to changes in interest rates. Consequently the majority of bonds on the secondary market traded either above or below par.

Coupon - a bond’s yield at any particular time.

Bond interest is tax deductible. A company deducts its interest payments from its profits before paying tax, whereas dividends are paid out of already-taxed profits. Apart from this ‘tax shield’, it is generally considered to be a sign of good health and higher future profits if a company borrows.On the other hand, increasing debt increases financial risk: bond interest has to be paid (even a year without any profits from which to deduct it, and the principal has to be repaid when the debt matures, whereas companies are not obliged to pay dividends). Therefore companies have a debt-equity ratio that is determined by balancing tax savings against the risk of being declared bankrupt by creditors.

Some sources of funds available to businesses (like issuing stocks) are not available to governments. When revenues fall short of expenditures governments go into debt – they borrow short-and long-term funds by issuing bonds Long-term government bonds are known as gilt-edged securities, or simply gilts, in Britain, and Treasury Bonds in the US. The British and American central banks also sell and buy short-term (three months) Treasury Bills as a way of deregulating the money supply. To reduce the money supply, they sell these bills to commercial banks, and withdraw the cash received from circulation; to increase the money supply they buy them back, paying with newly created money which is put into circulation in this way.

 

 

Shares

Market is a set of conditions permitting buyers and sellers to work together. There are two types of markets according to the character of concluded contracts: 1. Spot market is the buying and selling of goods, currency or securities that are available for immediate delivery. 2. Futures market is the buying and selling of goods, currency or securities for delivery at a future date for a price fixed in advance. Also, there are three types of markets according to their function: 1. Сommodity markets/exchanges are the places where raw materials and some manufactured goods are bought and sold for immediate or future delivery, 2. Foreign exchange markets are the markets where foreign currencies are traded, 3. Stock markets/exchanges are the markets where stocks and shares are bought and sold under fixed rules, but at prices controlled by supply and demand. The main idea of stock exchanges is to attract capital.

Generally, security/stock/ financial markets could be classified: According to territory: international, national/domestic, regional; According to the number of transferrings: Primary markets issue and trade new securities, an investor who purchases new securities is participating in a primary financial market; and secondary markets which trade previously issued securities, an investor who resells existing securities is participating in a secondary financial market. The development of the secondary market provides for liquidity and reducing the risks of investments. According to the company status and place of sale there are two basic types of stock markets – organized exchanges, like the New York Stock Exchange (NYSE) or the London Stock Exchange (LSE) which trade listed/quoted securities for/of successfully growing companies and the less formal over-the-counter markets that sell and buy unlisted securities for/of smaller and newer companies. In contrast to the organized security exchanges, the over-the-counter market (OTC) is an intangible organization that sells and buys unlisted securities outside of the organized securities exchanges. It is a network of security dealers who buy and sell securities from each other, either for their own account or for their retail clients. The prices of the securities are established by supply and demand. According to tendencies: a bear market when share prices fall because there are more sellers than buyers and a bull market when share prices rise because there are more buyers than sellers. According to maturity: money markets which deal in short –term securities having maturities of one year or less capital markets which deal in long-term securities having maturities more than one year.

There are three types of speculators "bulls", "bears" and "stags". A bull is a buyer who buys like this in the hope of a rise in prices. Bears are pessimistic speculators who expect a fall in share prices. Stags are speculators who operate in the "new issue" market. He does not want to keep the shares, or invest in the company that is issuing them, but simply to make a profit out of the issue.

Security is a fungible(взаимозаменяемый), negotiable (свободнообращающийся) instrument representing financial value. Securities can be classified: 1. According to the form of raising the capital (financing): Debt securities (bonds). It’s a promise by the company or government to pay back a certain amount of interest over a definite period of time.; Equity securities (shares). A share gives its holders the part of ownership of a company. 2. According to the issuer: Industrial and commercial; Government; Municipal; 3. According to the form of issuing: Scrip(документарные); Inscribed(недокум-ые); 4. According to the holder: Registered; Bearer; Order; 5. According to the term of circulation: Long-term; Short-term; 6. According to the resource the security is based on:primary are shares and bonds; secondary are options and warrants 7. According to the investment qualities: Liquidity; Risk involved; Yielding.

Security is a fungible(взаимозаменяемый), negotiable (свободнообращающийся) instrument representing financial value.A broadly categorized into debt securities, such as banknotes, bonds and debentures (долговое обязательство), and equity securities (common stocks).

Classification of shares.: 1. According to the right to get dividends: preference shares (or preferred stocks) - they rank before ordinary shares in the payment of dividends and distribution of assets if the company goes bankrupt; ordinary shares (or common stocks) - they rank for dividend and often for capital repayment after the preference shares, and accordingly they carry most of the risk, they are often the only kind of shares with voting rights; deferred shares are rarely issued now; they rank last for payment of divi­dend after the claims of all types of shares have been satisfied. 2. According to the issuer: shares of private limited companies. Holders have the right not to sell shares outside the company); shares of public limited companies 3. According to the holder: registered; bearer shares. 4. According to the form of issuing: scrip; inscribed 5. According to qualities and values investors want: growth stocks. They could be subdivided into 3 groups: " high-growth" stocks“, moderate-growth" stocks, stocks of companies that grow in line with the economy; cyclical shares - these are the shares of the companies that do not show any clear growth trend, but where share fluctuate in line with the business cycle, one can make money if he buys these near the bottom of price cycle and sell near the top; defensive or income stocks and shares - are shares that offer a good yield but only a limited chance of a rise or decline in price

Steps to set up a company: the founder have to write a Memorandum of Assosiation(GB) or a Certificate of Incorporation, which states the companies name, its purpouse, its registered office and the amount of authorised share capital. They also write Articles of Assosiation (GB) or Btlaws (US), which set out the duties of directors and the rights of shareholders. They send these documents to the registrar of companies.

Most companies begin as private limited companies. Their owners have to put up the capital themselves, or borrow it from a bank, perhaps a bank specializing in venture capital. Public limited company (GB) or a listed company (US). Newer and smaller companies usually join over-the-counter (внебиржевой) markets, such as the Unlisted Securities Market in London or NASDAQ in New York. The OTC brokers trade unlisted stocks by phone and keep contact with each other. The act of issuing shares for the first time is known as floating a company or making a floatation. Companies generally use an investment bank to underwrite the issue, i.e. to guarantee to purchase all the securities at an agreed price on a certain day, if they cannot be sold to the public. If a company wants to raise more money it issues new shares, which are normally offered first to existing shareholders at less than their market price. This is known as a rights issue. Companies sometimes also choose to capitalize part of their profit, i.e. turn it into capital, by issuing new shares to shareholders instead of paying dividends. This is known as a bonus issue.

When shareholders buy shares they are given different rights: Firstly buying a share gives its holder part of the ownership of a company. Secondly they have right to vote at a company’s Annual General Meeting. Thirdly they have right to receive a proportion of distributed profits in the form of a dividend. Fourthly they have right to receive part of the company’s residual value if it goes into bankrupt. And the last right shareholders can sell their shares at any time at the market price.

 

Taxation

I. A tax is a payment of money legally demanded by a government authority to meet public expenses. Taxation is the process of collecting taxes.

II. The primary function of taxation is, of course, to raise revenue to finance government expenditure, but taxes can also have other purposes. The second one is to encourage and discourage consumption and spending. For example, indirect excise duties can be designed to dissuade people from smoking, drinking alcohol, and so on. Governments can also encourage capital investment by permitting various methods of accelerated depreciation accounting that allow companies to deduct more of the cost of investments from their profits, and consequently reduce their tax bills. Eventually, taxation is authorized to reallocate financial resources and redistribute wealth (перераспределять финансовые ресурсы и перераспределять богатство). Income taxes in most countries are progressive, and are one of the ways in which governments can redistribute wealth.

III. Taxes can be: 1) direct (capital gain tax, land tax, income tax, transport tax etc.) or indirect (value-added tax, excises, customs duties, sales tax and others. Direct tax – a tax that is levied on the income or capital of an individual or company: the word ‘direct’ implies that the real burden of such a tax falls on the person or firm paying it and cannot be passed on to anybody else. Indirect tax – a tax levied on specific economic activities such as a tax paid on property, sales transactions, imports. Examples of indirect tax are: Value-added tax is a tax collected at each stage of production, excluding the already-taxed costs from previous stages. Excise duties is a type of tax charged on goods produced within the country as opposed to customs duties, charged on goods from outside the country. Sales tax is a tax, levied on the sale or purchase of goods. 2)Then taxes can be classified according to the level of authority: local, regional and federal (national). 3) Taxes are also divided according to the system of paying taxes: progressive (income tax) and regressive (sales tax) and according to the terms of paying them: urgent and periodical (they are paid monthly, quarterly, half-yearly or annually). Progressive tax - tax in which the average tax rate paid by an individual or a firm rises as income rises. Regressive tax – tax in which the average tax rate falls as income rises. Proportional tax – tax in which the average tax rate is the same at all income levels.

IV. Equity in taxes

Horizontal Equity: Equals should pay equal taxes. Vertical Equity: Unequals should pay different taxes. Benefits Principle: People should pay taxes in proportion to the bene­fits they receive from the government. Ability to Pay Principle: People who are able to pay more taxes should pay more.

V. Tax avoidance (legal) – arranging one’s affairs so that tax is not legally payable and reducing the amount of tax you pay to a legal minimum.

To reduce income tax liability, some employers give highly-paid employees lots of ‘perks’ instead of taxable money, such as company’s cars, free heath insurance, and subsidized lunches. Legal ways of avoiding tax, such as these, are known as loopholes in tax laws. Life insurance policies, pension plans and other investments, by which individuals can postpone the payment of tax, are known as tax shelters. Donations to charities that can be subtracted from the income on which tax is calculated are described as tax-deductible. Also companies can avoid tax on profits. For example: Companies can bring forward capital expenditure (on new factories, machines, and so on) so that at the end of the year all the profits have been used up; this is known as making а tax loss. One more way of tax avoidance on profits. Multinational companies often set up their head offices in countries such as Liechtenstein, Monaco, the Cayman Islands, and the Bahamas, where taxes are low; such countries are known as tax havens.

VI. Tax evasion (illegal) – finding ways of not paying tax that is in fact legally due, for example by making a false tax return. Tax evasion is thus illegal. Also companies can evade tax by money laundering. Money laundering is passing money through a series of companies in very complicated transactions in order to disguise its origin from tax inspectors – and the police.One more way of tax evasion is moonlighting. Lots of people have undeclared, part-time evenings jobs, on which no one pays any tax or national insurance. The last way of tax evasion is the size of the underground economy.

VII. Taxes in Russia 1) personal tax income, the main rate is 13%. Taxpayers are individuals resident in Russia for tax purposes; 2) unified social tax, the main rate is 35%. Taxpayersareall employers paying wages and salaries, including foreign legal entities and indi­vidual entrepreneurs ; 3) profit tax, the main rate is 20%. Taxpayers are Russian organisations and for­eign organisations that carry out their activ­ity in the Russian Federation; 4) property tax, for example, the rate on the flats is 2,2%. Taxpayers are legal entities, organizations. 5) VAT, the main rate is 18%.Taxpayers - Russian and foreign legal entities;

Also there are some other taxes such as, inheritance and gift tax (35%), land tax (from 0,5 to 1,5),advertising tax (5%)