Л.Е. Мазурина, В.Н. Шмырева
GUIDE-LINES
FOR DEVELOPING LANGUAGE SKILLS
IN ECONOMICS
Пособие по развитию
коммуникативных навыков
на экономических материалах
(английский язык)
Для студентов экономических факультетов
Москва
Институт международного права и экономики имени А. С. Грибоедова
2007
УТВЕРЖДЕНО
кафедрой иностранных языков
С о с т а в и т е л и: Л.Е. Мазурина, В.Н. Шмырева
Guide-lines for Developing Language Skills in Economics: Пособие по развитию коммуникативных навыков на экономических материалах (английский язык). – М.: ИМПЭ им. А. С. Грибоедова, 2007. – 84 с.
Подготовлено на кафедре иностранных языков.
© Мазурина Л.Е., Шмырева В.Н., 2007
TYPES OF BUSINESS
When setting up in business, one of the key decisions is the type of business that you should aim to be. There are a number of different types of business and choosing the wrong one could have significant repercussions in the future if you get it wrong.
So you have a good business idea and you like the idea of being your own boss, but what sort of business should you start? The legal structure of the business is quite important as different types of business are subject to very different regulations and the wrong choice now could have significant repercussions in the future.
Probably 99% of small and mid-sized business will be well served by one of just four basic business entities:
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Sole Proprietorship -
General Partnership -
Private Limited Company -
Public Limited Company
Unincorporated firms
An unincorporated firm is one that is not registered with Companies House as a business and there are two main types – sole trader and partnership.
Sole trader
A sole trader is the simplest form of business organisation. There are no legal requirements – you simply set up and get on with trading. Any income or profit that you earn is yours and yours alone and you pay income tax on that income. There are few legal constraints and you have what is called unlimited liability. This means that any debts are your debts and so if you stop trading with large debts, you will be personally responsible for these debts. Creditors will have a claim on your house, yacht or any other personal assets you may have.
Partnership
This is, in essence, like a sole trader but with the ownership shared between partners. However, a partnership should have a partnership agreement (a legal document) drawn up to show the rights and responsibilities of all the partners. There may also be 'sleeping partners' who own a share of the business but are not involved in the day-to-day running of the business. A partnership also has unlimited liability. Partnerships are common in the professions such as accountancy and law.
N.B. Since April 2001 there has been a new form of partnership called a limited liability partnership (llp). This is like a cross between a partnership and a limited company as it has limited liability (like a limited company), but has to be owned by at least two members – being a partnership!
Both sole proprietorships and general partnerships share important liability and tax characteristics. Let’s begin with legal liability. As a sole proprietor, you bear the full legal liability for business debts and for any legal judgments against your business. Similarly, in a general partnership, each partner is personally liable for all monetary obligations.
Suppose you form a general partnership with two other people. What if one of your partners fires an employee who then sues the partnership for wrongful discharge? And what if the jury returns a verdict for $100,000 for the employee? You and your two partners will each be personally responsible for paying the full $100,000.
To satisfy the six-figure verdict, the fired employee can go after your personal assets as well as partnership assets. Your home, your personal bank accounts and your car are all at risk. As we’ll see, by doing business through a corporation or limited liability company (LLC), you can reduce this risk.
There’s another characteristic shared by sole proprietorships and general partnerships: neither offers any flexibility when it comes to federal income taxes. The profits from the business are reported on your personal tax return if you’re a sole proprietor. With a partnership, you report your share of the partnership profits on your own tax return.
For some businesses – especially for some small businesses just starting out – being exposed to unlimited personal liability and being responsible for taxes is no big deal. Maybe you have no employees, don’t anticipate any business debts and feel you can handle all the risks of lawsuits by buying liability insurance. A sole proprietorship or general partnership may work for you.
Doing business as a sole proprietorship or general partnership will keep your paperwork and legal and accounting expenses to the bare minimum.
But most businesses can benefit from one of the other two business types. That’s so even though the paperwork requirements are a bit more complex and the costs a little higher.
Incorporated firms
The next step up in terms of legal structure is to form an incorporated firm. There are two main types – a private limited firm and a public limited firm.
Private limited company (Ltd)
A private limited company is one where the liability is limited. Unlike a sole trader where the liability is unlimited, with a limited company the liability is limited to the value of the shares issued. This means that any debts are debts of the company and not of the owners. To form a limited company it must be registered at Companies House and the firm must have various legal documents including a Memorandum and Articles of Association. There need only be one director and they have to prepare annual accounts and submit them to Companies House. Private limited companies can range significantly in size. They may consist of a small family based business or they could be the Virgin group (which is a private limited company majority owned by Richard Branson).
Public limited company (Plc)
Like a private limited company, a plc has shares, but the key difference is that these shares can be bought by anyone freely on a stock exchange. Ownership is therefore open to anyone who wants to buy shares. PLCs have legal requirements in that they have to produce annual reports and accounts and file them with Companies House. There are various other requirements including:
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You must have at least two directors. -
You have a fully qualified Company Secretary.
For liability purposes, the law treats LTDs or PLCs as separate from the owners. For the most part, an owner stands to lose only what he or she has invested in the business. An owner normally isn’t liable for debts of a company. This means a creditor or judgment-holder can’t seize an owner’s personal assets.
Let’s return to the earlier example, but with an important variation. Suppose you and two other people form an LTD rather than a partnership. Now let’s assume that one of the other owners fires an employee who then sues the LTD for wrongful discharge. This time, if the jury returns a verdict for $100,000 for the employee, you won’t be personally liable for paying the money.
Be aware, however, that the owner who fired the employee will be personally liable – along with the LTD – if the fired employee gets a verdict against the owner as well as the business.
So the protection you gain by forming an LTD or PLC doesn’t give you a 100% safety net. You can still face personal liability if you’re the person who causes harm to someone – like firing an employee improperly or injuring a customer. That’s also true if you personally guarantee a business obligation like a bank loan. You’ll be personally liable if your company lacks funds to pay back the loan.
But even though an LTD or a PLC won’t protect you completely from liability, the protection these business types do provide is an attractive benefit.
On the tax side, by forming either an LTD or a PLC, you gain tax flexibility. You can choose to have pass-through taxation for your business like a sole proprietorship or general partnership has. On the other hand, you can decide to have the business taxed as a separate entity. Because an LTD or a PLC may be in a lower tax bracket than you are, you may prefer this separate taxation if you’re going to leave profits in the business.
In most cases, the LTD has a slight edge. It usually involves less paperwork than a corporation to set up and maintain. In addition, the set-up and maintenance costs are usually a bit less.
The LTD gives you maximum flexibility in how you structure your business. For example, you don’t need a board of directors or traditional corporate officers like a president and secretary – although you can have them if you want to.
In a few situations, however, the PLC may have an edge over the LTD. This might be the case if you have outside investors who’d like to have corporate stock certificates to show for their investments. Or if you’re planning to offer ownership options to employees, the availability of corporate stock certificates may make the process easier.
Various factors come into play when a firm has to decide whether to be a public or private limited company. In recent years a number of firms have reverted to private ownership after being publicly listed – the most famous example perhaps being Virgin which was bought back by Sir Richard Branson after it was floated. He was unhappy with the way the market was valuing the shares.
This tells us one of the key factors in becoming a publicly quoted company, and that is that the company is left to the vagaries of the stock market to value it and this may be driven by factors other than those most important to the company and owners.
Other issues that may be relevant for public companies are:
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A loss of control that the original owners may face when the shares are floated on the Stock Exchange. -
The initial size of the business – often small businesses that can relatively easily be set up as private companies may not have the capital required to become a public company – the minimum share capital necessary is £50,000 and the legal requirements can be expensive in terms of legal fees, etc. -
A divorce between ownership and control – the company is owned by the shareholders who have bought through the market, but is run by the Board of Directors. Though the shareholders may have ultimate say on the composition of the Board, this is difficult to enforce in practice and this may lead to this divorce between ownership and control with the owners and managers potentially having different objectives. -
The company may become an easier target for takeover as the shares are publicly traded. VW law – not more than 20% of shares for an owner, criticized.
The Main Advantages and Disadvantages of Each Business Structure
are Given Below
Types of Business Organization
Sole Proprietorship
A Sole Proprietorship consists of one individual doing business.
Advantages
1. Cheap and easy to start
2. All the profit is yours
3. You are your own boss
4. You do all the work
Disadvantages
1. Unlimited liability
2. Limited commercial life
3. All the risk is yours
4. What about sickness and holidays?
5. Do you have all the skills?
Partnership
A Partnership is made up of two or more individuals doing business together.
Advantages
1. Access to greater amounts of capital
2. Possible synergism
Disadvantages
1. Same as with sole proprietorships
2. Partnership disputes
Corporation
A Corporation is a legal entity doing business. It is made up of many owners and is organized under articles of incorporation.
Advantages
1. Limited liability
2. Unlimited commercial life
Disadvantages
1. Higher organization cost
2. Restrictions on company
Private limited company
Advantages
1. You have limited liability
2. Easier to raise larger sums of capital
3. More flexible than PLCs
4. Opportunities for bringing in more skills
Disadvantages
1. You can only sell shares privately
2. Not very flexible if expansion becomes possible
3. More legal formalities than sole traders
Public limited company
Advantages
1. You have limited liability
2. Easier access to finance
3. More funds available for investment
4. Public awareness gives status
Disadvantages
1. You have to publish results
2. Others, e.g. auditors have to look at your books
3. Greater need to conform to legal procedures
4. Owners might lose control
Friendly society
Mutuals
-
members are not shareholders -
profits are not paid out to individuals -
There exist:
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mutual funds -
savings banks (mutual) -
mutual insurance companies where owners are policy-holders rather than share-holders
Russian legal entity
Registration and Accreditation
Registration is done by the Tax authorities, which keep the United State Register.
Company also shall be registered with State Committee for Statistics and three non-budgetary funds (Pension fund, Obligatory Medical Security fund and Social Security fund). Effective 1 January 2004, the registration procedure for Russian legal entities is simplified by the introduction of a “one window” approach to the process and Tax authorities are responsible for the registration procedures.
Registration and Accreditation duties and charges
Registration duty is 2000 rubles (~70 USD).
There are also charges for registration of company’s seal, registration at State Committee for Statistics, which amount in general to no more than ~80 USD.
Authorized capital
Minimum authorized capital for LLC and PJSC is 10,000 rubles (~370 USD)
Accounting and Tax Compliance
Companies shall file accounting and tax reports with the tax authorities on a quarterly basis. Reports on VAT shall be filed every month.
Stages of registration of a Russian legal entity:
1. Registration at the Tax authority. 5–7 working days
2. Registration at the State Committee for Statistics. 2–5 working days
3. Making of the seal of the Company. 2–5 working days
4. Registration at non-budgetary funds (Pension Fund, Social Security Fund, Obligatory Medical Security Fund) is done by tax inspectorate
5. Opening of the bank account depends on the bank
6. Registration of the shares issue with the Federal Services for Financial Markets*. 24–30 working days
Vocabulary
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to set up in business to have repercussions the legal structure of business to be subject to regulations small business medium-sized business mid-sized business business entity sole proprietorship general partnership (unlimited partnership) private limited company (Ltd) public limited company (Plc) unincorporated firms to be registered sole trader=sole proprietor self-starter self-employed
income tax legal constraints unlimited liability debts
to have a claim on smth in essense ownership shared between partners a partnership agreement sleeping partners to be common a limited liability partnership (LLP) legal liability to bear legal liability to return a verdict the jury
wrongful discharge federal income tax personal tax return lawsuit liability insurance to withdraw the profits paperwork incorporated firms Companies House a Memorandum of Association Articles of Association (Articles of Incorporation) stock exchange an Annual report accounts to be liable for debts judgementholder to seize
pass-through taxation tax bracket to have an edge on/over stock/share certificate ownership option to revert to
to float
vagary a divorce between ownership and control a target for takeover VW law access to synergism partnership disputes auditors public awareness registration and accreditation tax authorities United State Register State Committee for Statistics non-budgetary funds Pension fund Obligatory Medical Security fund Social Security fund duties charges authorized capital accounting tax compliance VAT – valued added tax a company seal PISC – Public Joint Stock Company |
открывать собственное дело иметь последствия юридическая/законодательная структура бизнеса подлежать/подчиняться правилам/нормам малый/мелкий бизнес, малое предприятие средний бизнес самостоятельная, хозяйственная организация, экономическое предприятие
полное товарищество, члены которого несут как солидарную, так и личную ответственность частная компания с ограниченной ответственностью, закрытая акционерная компания, имеющая право не выставлять свои акции на продажу публичная компания с ограниченной ответственностью, открытая акционерная компания, выпустившая свои акции на свободный рынок и публикующая требуемый объем информации о своей деятельности неакционерные, некорпоративные фирмы быть зарегистрированным, иметь лицензию (право, разрешение) индивидуальный предприниматель, единоличный владелец инициатор собственного бизнеса работающий на собственный бизнес юридические требования доход, прибыль подоходный налог юридические ограничения неограниченная ответственность акционера долги быть лично ответственным за что-либо предъявлять права/претензии на ч-л по существу собственность, поделенная между партнерами по бизнесу соглашение о партнерстве пассивные партнеры быть широкораспространенным партнерство с ограниченной ответственностью юридическое, правовое обязательство/ответственность нести юридическую ответственность выносить вердикт о виновности/невиновности суд присяжных предъявлять иск, возбуждать дело незаконное увольнение подоходный налог, взимаемый федеральным правительством личная налоговая декларация судебный иск, судебный процесс страхование гражданской ответственности изымать прибыль канцелярская работа фирмы, зарегистрированные как корпорации или юридические лица, имеющие статус акционерного общества место, где хранится официальный список британских компаний меморандум об ассоциации, документ, представляемый для регистрации новой компании и содержащий название, цель компании, размеры и структуру капитала, данные об ответственности членов и зарегистрированный адрес; определяет главным образом внешние отношения компании устав компании биржа
финансовые отчеты/отчетность нести ответственность за долги кредитор, признанный таковым по решению суда конфисковать, захватывать страховка, гарантия льготное налогообложение ступень налоговой шкалы в прогрессивном налогообложении; выражается в виде процента, взимаемого с суммы, превышающей базовый уровень для данной ступени иметь преимущество перед акционерный сертификат, удостоверяющий право владельца на часть капитала компании акционерный опцион, право купить акции по льготной цене вернуться к быть официально зарегистрированным на фондовой бирже выпускать, размещать ценные бумаги на фондовой бирже выпуск; размещение ценных бумаг на фондовой бирже каприз; причуда, выходка расхождения, разрыв между владельцами и управленцами мишень для поглощения закон фирмы Фольксваген, согласно которому в одни руки можно приобрести только 20% акций доступ взаимное усиление действия; слаженная совместная работа разногласия партнеров аудиторы осведомленность общественности регистрация и аккредитация налоговые органы/администрация Объединенный Государственный Регистр Госкомитет по Статистике небюджетные фонды Пенсионный фонд фонд Обязательного Медицинского обеспечения фонд Социального Страхования пошлины сборы уставной капитал представление официальной отчетности отчет об уплате налогов налог на добавленную стоимость печать компании публичная акционерная компания |
Answer the following questions:
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What are 4 basic business entities? -
Describe the pluses and minuses of unlimited liability for sole proprietorships and partnerships. -
How do unincorporated firms differ from incorporated business? -
What are the factors that come into play when a firm has to choose between being a private limited company (Ltd) or a public limited company (Plc)? -
What are the main advantages and disadvantages of each business structure? -
Describe the stages of registration of a Russian business entity.
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