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Types of Proprietorship

From the legal point of view there are three basic kinds of business firms: 1) sole proprietorships, 2) partnerships and 3) corporations.

A sole proprietorship, is a type of enterprise that is owned and run by one person and in which there is no legal distinction between the owner and the business entity. A sole trader does not necessarily work 'alone' – it is possible for the sole trader to employ other people. The sole trader receives all profits and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor's. A sole proprietor may use a trade name or business name other than their or its legal name. They may have to legally trademark their business name if it differs from their own legal name, the process varying depending upon country of residence. To start the business of this kind it is necessary to obtain licenses required by the law.

The proprietorship form has several advantages, such as: simplicity of organization, freedom to make all decisions, tax advantages etc. Among disadvantages the following are worth mentioning: possible lack of ability and experience, difficulty in rising capital.

A partnership is an arrangement where partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Organizations may partner to increase the likelihood of each achieving their mission and to amplify their reach. A partnership may result in issuing and holding equity or may be only governed by a contract.

As common law there are two basic forms of partnership: 1) general partnership: a partnership in which all partners manage the business and are personally liable for its debts. General partners have an obligation of strict liability to third parties injured by the Partnership. General partners may have joint liability or joint and several liability depending upon circumstances. 2) Limited partnership (LP): a partnership in which general partners manage the partnership's operations, and limited partners forego the right to manage the business in exchange for limited liability for the partnership debts. The liability of limited partners is limited to their investment in the partnership.

A silent partner is one who still shares in the profits and losses of the business, but who is not involved in its management. Sometimes the silent partner's interest in the business will not be publicly known. A silent partner is often an investor in the partnership, who is entitled to a share of the partnership's profits. Silent partners may prefer to invest in limited partnerships in order to insulate their personal assets from the debts or liabilities of the partnership. Advantages of the partnership may be combined talents, judgements, skills as well as larger capital and tax advantages. Disadvantages of this form are divided authority, danger of disagreement etc.

A corporation is an organization, usually a group of people or a company, authorized to act as a single entity. Most jurisdictions now allow the creation of new corporations through registration.

Corporations are usually divided into two kinds: by whether they can issue stock or not, or by whether they are formed to make a profit or not. Corporations can be divided by the number of owners: corporation aggregate or corporation sole. A corporation sole is a legal entity consisting of a single incorporated office, occupied by a single natural person.

Registered corporations have legal personality and their shares are owned by shareholders whose liability is generally limited to their investment. Shareholders do not typically actively manage a corporation; they instead elect or appoint a board of directors to control the corporation in a fiduciary capacity.

Advantages of the corporation is variety of skills, abilities and ideas, ease of expansion. Disadvantages of this form of ownership may be as follows: government regulation, profit sharing, taxes. Corporation has the right to conduct business as if it were one person.

Management

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