Read and translate the text using Active Vocabulary. If you decide to start a business, one of the first steps you must take is to determine what type of business organization it will be

 

If you decide to start a business, one of the first steps you must take is to determine what type of business organization it will be. Practically speaking, you have five different forms of business structure to choose from. Which form you choose requires careful weighing of important factors: the extent of liability of yourself and possibly other investors for the organization’s debts, tax advantages and disadvantages, the expense of forming and operating the organization, the complexity of the management structure and difficulty of raising capital with the particular form of the organization.

Let us examine the five most common forms of business organizations and discuss the rights, duties and liabilities of members of those firms. They are:

1. sole proprietorship;

2. general partnership;

3. limited partnership;

4. limited liability company;

5. corporation.

 When you are the sole owner (proprietor) of a business, the state exercises the minimum control over how you operate the business. Your finances are confidential and formalities are few. But the trade-off for maximum personal control over the enterprise is that you are subject to full personal responsibility for all its debts. With few exceptions if you are a sole proprietor you may engage in any type of business you choose. This generally suits a relatively small enterprise, such as an independent software developer, a hairdresser or a small shop. You will merely be obliged to pay a license fee required of all businesses and to comply with any laws that are applicable to the type of business you operate. You may also pledge assets of the business as security for repayment of your loans. You are entitled to all the profits the business makes, and you must pay for all the losses. The chief drawback of doing business as a proprietor is that, as a sole owner, you alone are personally liable for all debts the business incurs and thus risk becoming a bankrupt. Moreover, you may not have the capital or credit that is needed for expanding business.  

If you still desire substantial control over the business, but need to bring other associates to increase your capital, your next step may be to consider formation of a general partnership. With more than one person involved in the ownership of the business, the organization is more complex than that of a sole proprietorship. You and your partners assume duties and obligations that are not present in a sole proprietorship.

If you form a general partnership, you and your partners may carry on almost any kind of business activity that you wish – again with only a minimum of governmental control. It is a common form of structure for certain types of businesses, for example, accountants, solicitors, architects. Usually, each member invests in money, some property, work or service. Like a sole proprietor, each partner is personally liable for all the company’s debts and each partner owes special legal obligations to the other co-partners. There is no federal income tax as such on the partnership. Rather, each partner declares a pro rata share of the firm’s profit on his/her personal income tax return.

The relationship between the partners is usually drafted in the Partnership Agreement. This can set out the duration of the partnership, its name and business, how profits, losses and running costs are to be shared, how much capital each partner is to contribute, what restrictions are imposed on partners, and so on.

In a limited partnership one or more of the partners (the general partners) manage the business, while others (the limited partners) merely invest in the enterprise and have very limited rights in its management. The general partner of a limited partnership is personally liable for the firm’s debts. If you become a limited partner, however, you have no personal liability beyond your capital investment. A sleeping partner may have a share in the business but does not work for it.

Very recently, some states have enacted laws permitting formation of a new business entity called a limited liability company (LLC). As in a partnership – each member’s pro rata share of the firm’s profit is taxed on his/her personal federal income tax return, but there is no tax against the LLC as such. LLCs are to be registered with the Registrar of Companies.

There are Private Limited Companies and Public Limited Companies. Private Limited Companies can be formed with a minimum of two people becoming its shareholders. They must appoint a director and a company secretary. If the company goes out of business, the responsibility of each shareholder is limited to the amount that they have contributed; they have limited liability. A Private Limited Company may sue and be sued in its own right. In some instances, a director will be asked to guarantee the obligations of the company, for example, by giving security over personal assets to guarantee company borrowing. 

A Public Limited Company (PLC) is different from a Private Limited Company in that the shares can be sold to the general public via the stock market to raise share capital. It is mandatory for a PLC to have at least two shareholders, two directors and a professionally qualified Company Secretary.

Sometimes a corporation best suits your needs. Of the five types of business organization, the corporation has the most complicated structure. A corporation is established by charter from the state and is a separate legal entity apart from its owners. This form of organization is particularly suited to large complex enterprises. The shareholders of a corporation, who may number in the thousands, are its owners. They have no voice in the day-to-day management and no liability for debts; but they do share in company earnings. Unlike partnerships or LLCs, corporations are subject to double taxation of the same earnings – first, by the corporate income tax, and again when the same earnings are passed on as dividends to the stockholders, who pay personal income tax on the additional income.  

 

 

LANGUAGE FOCUS

1. Give Russian equivalents for the following English words and phrases:

to enter into contracts to sue to be sued to pay debts to raise capital to go out of business to run a business to employ people to be responsible for to share profits to share liability to debts to find property at risk

business entity legal person sole trader stock exchange minimum share capital shares listed shares shareholders in strict accordance with the law