U N I T 1 PROFESSIONAL ENGLISH
F I N A N C E
Starting up
When people want to set up or start a company, they need money, called capital. Companies can borrow this money, called a loan, from banks. The loan must be paid back with interest. Capital can also come from issuing shares or equities. The people who invest money in shares are called shareholders and they own part of the company. The money they provide is known as share capital. Individuals and financial institutions can also lend money to companies by buying bonds.
Discuss the following points.
1. What is necessary to start a company?
2. What is the difference between share capital and borrowed capital?
Look through the following vocabulary notes which will help you understand the text.
| A share, a stock, an equity | Акция |
| Share capital | Акционерный капитал |
| A bond | Облигация |
| Sole trader, sole proprietorship | Единоличное владение |
| A partnership | Товарищество |
| A legal entity, a legal body, a legal person | Юридическое лицо |
| An individual, a legal person | Физическое лицо |
| To be sued | Отвечать по иску в суде |
| Limited liability | Ограниченная ответственность |
| Unlimited liability | Неограниченная ответственность |
| Unanimity | Единогласие |
| By majority vote | Большинством голосов |
| A private company | Частная компания закрытого типа |
| A public company | Публичная компания открытого типа |
| A Memorandum of Association | Меморандум об ассоциации (Бр. Документ, представляемый для регистрации новой компании) |
| A stock exchange listing | Регистрация акций компании на бирже |
| Incorporation | Регистрация акционерной компании |
| Continuity of existence | Неограниченный срок существования |
| To raise capital | Мобилизовать капитал |
Reading
Forms of Business Organization
Firms can be of different types and sizes. The sole trader is the simplest form of business unit and tends to be found in industries where personal service is important, where there are few advantages in large scale production and where little capital is needed to start up the business. The sole trader provides the capital to run the business, bears the risk of loss, enjoys the benefit of any profits and makes his or her own decisions. There are few legal formalities necessary to start business as a sole trader.
As a form of organization partnerships are commonly found in those professions (such as accountants and solicitors) whose rules may prevent members from forming companies. Many of the problems associated with sole proprietorship may be overcome by forming a partnership. Thus responsibility for finance, risk and work is shared.
Unlike companies, partnerships are not a legal entity. This means they cannot own property or sue or be sued in their own name. Like sole traders partners have unlimited liability for the debts of the firm. In practice this means that partners are legally responsible for both their own and their co-partners’ actions. They must choose their partners with care. The Partnership Act of 1890 lays down that
- partners will share profits and losses equally
- decisions relating to the partnership business require unanimity
- decisions relating to the day-to-day running of the business may be settled by majority vote
- all partners are entitled to be involved in the management of the business.
- There are over 1.3 mln companies registered in the UK. They vary in size from the very small with only 2 shareholders to the very large multi-national enterprise in which thousands of shareholders have invested. Companies can be private and public.
Any registered company is deemed to be a private company unless:
- the memorandum of association states that the company is a public limited company and the name includes those words (or the abbreviation plc)
- the memorandum must conform to the requirements of the Companies Acts
- the company has a minimum share capital of 50,000 pounds sterling
As opposed to public companies private companies cannot advertise the sale of their shares or obtain a stock exchange listing. Compared with sole traders and partnerships, companies have the following advantages:
- incorporation creates a new legal entity, independent of its shareholders.
- shareholders have limited liability, thus they know in advance that their liability is limited to the amount they have invested.
- the company has continuity of existence and is unaffected by the death of one of its members.
- it has greater opportunities for raising capital for expansion.
However against these advantages must be put a number of possible disadvantages:
- there is a legal obligation to disclose certain information; for example contractual powers, rules relating to the internal conduct of the business or annual reports
- there may be a divorce between ownership and control
- internal procedures may prevent the company from adapting quickly to changed market conditions
- close relationships between the company, its customers and employees are often precluded by size.
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Comprehension
1.4.1 Answer the questions using your active vocabulary.
1. What is the main topic of the text?
2. What forms of business are described in the text?
3. Why do you think it is relatively easy for sole traders to start their own business?
4. What are the common features of a sole trader and a partnership?
5. Sole traders and partners have limited liability, do not they?
6. What are the main provisions of The Partnership Act of 1890?
7. Why is a company independent of its owners?
8. What is the shareholders’ liability limited to in a company?
9. What is the difference between private companies and public companies?
10. What are the advantages of a company as compared to partnerships and sole traders?
11. What are the disadvantages of a company as opposed to partnerships and sole traders?
12. Why do you think companies have greater opportunities for raising capital and expansion?
1.4.2 Mark these statements T(true) or F(false) according to the information in the text. If they are false say why.
1. Sole traders have limited liability for the debts of their business.
2. A sole proprietorship is a legal entity.
3. Partners as well as shareholders are fully liable for the debts of the business.
4. As opposed to sole traders partners can raise more capital to finance their business.
5. A partnership must be dissolved if one of the partners dies.
6. Both private and public companies offer their shares to the general public.
7. The sole trader needs not only a technical expertise, but also ability in accountancy, marketing, personnel and general administration.
8. A lot of problems associated with partnerships may be overcome by forming a sole proprietorship.
9. Without accounting knowledge it is easy to see the danger signs relating to cash flow or credit control or to obtain the necessary long term capital.
10. A firm is likely to have a variety of objectives which reflect not only the interests of the shareholders but also the managers and other groups within the environment.
11. Decisions relating to the nature of the partnership business and to the day-to-day running of the business require unanimity.
12. Unlimited companies with no limit to the shareholders’ liability do not exist in the UK.
13. In practice, firms have perfect knowledge of market conditions and the situations which face them are predictable.
Language practice
1.5.1 Match the English word combinations in the left-hand column with the definition in the right-hand column.
| liability | A | a company whose shares are not publicly available | |
| sole trader | B | the system by which shareholders in a company are not liable for its debts beyond the nominal value of their shares | |
| dividend | C | a person with overall responsibility for decision making in a business, who receives any profits and bears any losses | |
| limited liability | D | a payment of income by a company to its shareholders | |
| board of directors | E | a person or company holding shares in a company | |
| Memorandum of Association | F | the governing body of a company, which appoints the company’s officers | |
| private company | G | the legal obligation to pay debts | |
| shareholder | H | a legal document for the report of an agreement that has been reached but not yet formally drawn up and signed |
1.5.2 Complete the following text using suitable words or phrases from the box below.
| A | Debts | E | Unlimited liability |
| B | Partnership | F | Enterprise |
| C | Legal entities | G | Risks and profits |
| D | Limited liability | H | Legal action |
Partnerships and Sole Traders
A partnership is a business arrangement in which several people work together, and share _____(1)_____. In Britain and the US, partnerships do not have _____(2)_____ for debts, so the partners are fully liable for any _____(3)_____ the business has. Furthermore, partnerships are not _____(4)_____, so in case of a _____(5)_____, it is the individual partners and not the _____(6)_____ that is taken to court. In most continental European countries there are various kinds of partnership which are legal entities.
A sole trader business is an _____(7)_____ owned and operated by a single person who has _____(8)_____ for debts.
1.5.3 Complete the text. Replace the Russian words and phrases by English equivalents.
Limited Liability
A company is a business that is a (юридическое лицо). In other words, it has a separate legal existence from its owners, the (акционеры). It can enter into contracts, and can be sued if it breaks a contract. A company can continue for ever, even if the staff and owners change. Most companies have (ограниченная ответственность), which means that the owners (не нести ответственности) for the business's debts. These companies are known as (компании с ограниченной ответственностью). Their liability is limited to the value of their (акционерный капитал). The limitation of liability encourages investors to risk their money to become part owners of companies, while leaving the (управление) of these companies to qualified managers and senior managers, known as directors.
1.5.4 Text for discussion.
a. Look up the dictionary for the meaning and pronunciation of the following words and word-combinations.
A private company; a public company; a stock exchange; a corporation; the Securities and Exchange Commission; a listed company; a quoted company; a quarterly report; an interim report; an Annual Report; the auditors’ report; sales revenue; gross profit; net profit.
b. Briefly scan the text and outline the list of major points.
c. Read the text more carefully and comment on the following items:
- The difference between the companies having “Ltd” and those having “plc” at the end of their name.
-The major advantage of listed or quoted companies over private companies.
| Private and Public Companies Private companies usually have “Limited” or “Ltd” at the end of their name. They are not allowed to sell their stocks or shares on the open market. Most companies are private. Public limited companies (PLCs) have “plc” at the end of their name, and their shares are publicly traded on the London Stock Exchange. A stock exchange is a market where anyone can buy stocks or shares. The US equivalent of a PLC is a company or corporation registered with the Securities and Exchange Commission (SEC). SEC-registered companies, also known as listed companies, have to make quarterly reports. They report on sales revenue (the money received by the company in that period from selling goods or services), gross profit (sales less cost of sales), net profit (gross profit less administrative expenses and tax). Companies on the London Stock Exchange, known as quoted companies, have to produce a half-yearly interim report which informs shareholders about the company’s progress. These reports are not audited. All companies with shareholders or stockholders have to send them an Annual Report each financial year. This contains a review of the year’s activity, and an examination and explanation of the company’s financial position and results. There are also financial statements and notes, and the auditors’ report on the financial statements. |