Text 2. BUSINESS STRUCTURE AND RESPONSIBILITY
Read the text and speak about the forms of business organization
Text 1. THE MAIN FORMS OF BUSINESS ORGANIZATION
Individual Proprietorship (Sole Trader or Sole Proprietor)
This is the simplest way of starting a business. You are self-employed and fully responsible for all the aspects of the management of your business.
In this form of organization the owner is in sole charge of the business and is responsible for its success or failure. Any line of business is open to an owner.
Although this form of small business has its advantages, it has certain drawbacks. In the first place the single owner is seldom able to invest as much capital as can be secured by a partnership or a corporation. If single owners are able to invest large amounts of capital, they run great risk of losing it all because they are personally liable for all the debts of their businesses. This is called unlimited liability.
Partnership
Two or more people starting a business together can set up a partnership. All partners are responsible for the debts of the partnership and profits and losses are shared between them.
The agreement to form an association of this nature is called a partnership contract and may include general policies, distribution of profits, fiscal responsibilities, and a specific length of time during which the partnership is in effect.
Public and private companies
A company is usually formed for the purpose of conducting business that is separate from its owners, the shareholders. The main difference is between public and private companies.
Private companies cannot sell shares to or raise money from the general public.
Public companies can sell their shares to the general public (which they usually do through a stock exchange). A company continues to exist despite changes in (or deaths among) its owners. A company can hold assets; it can sue, and it can be sued. The profits are distributed to the members as dividends on their shareholding. Losses are borne by the company. The day-to-day management of the company is carried out by a board of directors. Private limited companies are often local family businesses and are common in the building, retailing and clothing industries.
A private company 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. Such a company has Ltd (Limited) after its name.
Many large businesses in the UK are Public Limited Companies(PLC), which means that the public can buy and sell their shares on the stock exchange. Marks & Spencer, British Telecom and the National Westminster Bank are the examples of public limited companies.
In the US, businesses take the same basic forms. American companies have abbreviations Incand Corp.
Other types of companies are:
1) Associated company, which is a company over which another company has substantial influence; for example it owns between 20 per cent and 50 per cent of its shares.
2) Holding company, a company that owns another company or other companies and which is sometimes referred to as the parent company (most public companies operate through a number of companies controlled by the group's holding company);
3) Subsidiary company, a company controlled by a holding company, usually because the holding company owns (or indirectly owns through another subsidiary) more than 50 per cent of the subsidary company's shares.
The Corporation
As business became more competitive, new and more complex corporate combinations appear. Single ownerships and the partnerships have finance weaknesses and that is the reason why the corporation came into existence.
The major simple forms of integration are the following:
• A vertical integration characterizes companies that engage in the different steps in manufacturing or marketing a product.
• A horizontal combination brings under one control companies engaged in the sale of the same or similar products.
• A complementary combination takes place when companies, selling allied but not competitive products, combine.
• A conglomerate combination involves firms in widely diverse industries, such as a motor company owning a food manufacturer or book publisher.
• Of great economic importance are multinational corporations. Such companies maintain extensive business activities and large-scale production facilities throughout the world, and their revenues sometimes exceed the total revenues of some countries in which they operate.
International business is a dynamic activity which changes, adapts and responds according to the conditions. Apart from conventional trade it takes various forms such as franchising, buy-back transactions, turnkey projects, transactions in patents, licences, know-how, services, various joint ventures, joint banks, mixed commissions and many other forms.
Exercise 1 What sort of company is it?
There are many types of business organization and the different terms can be confusing. Read both columns below. The left-hand column gives various types of organization and the other column contains short descriptions of each organization. Match the types and their descriptions
| Type | Description |
| 1. charity | A. a friendly association of people |
| 2. company (UK) (corporation US) | B. two or more partners working together for profit, without limited liability |
| 3. cooperative | C. a firm where shareholders' liability is limited |
| 4. enterprise | D. company owned by the state |
| 5. government agency | E. a general word for a company, usually a small one, part of a large group. It also means-activity |
| 6. holding company | F. a company whose shares are publicly available |
| 7. limited company | G. a democratic firm owned by its workers. |
| 8. minority interest | H. firm owned by a parent company. |
| 9. multinational | I. a firm based in a tax haven to avoid higher taxation. |
| 10. nationalized company | J. a new commercial activity |
| 11. offshore company | K. an organization operating in several countries. |
| 12. operation | L. an organization which is part of the state administration. |
| 13. parent company | M. a company whose shares are not publicly available, |
| 14. partnership | N. an organization operating to make a profit. |
| 15. private company | O. a company which owns another. |
| 16. public company | P. a firm, usually without commercial activity, created to be parent to other companies. |
| 17. society | Q. an organization to relieve poverty, advance religion or education, etc; benefits from some financial concessions. |
| 18. subsidiary (affiliate) | R. company in which another firm has less than a 50% interest. |
Text 2. BUSINESS STRUCTURE AND RESPONSIBILITY
The managing Director (sometimes called the Chief Executive, or President in the USA) is the head of the company.
The company is run by a Board of Directors; each Director is in charge of a department. However, the Chairman of the Board is in overall control and may not be the head of any one department.
Most companies have Finance, Sales, Marketing (sometimes part of Sales), Production, Research and Development (R & D) and Personnel Departments. These are the most common departments, but some companies have others as well.
Most departments have a Manager, who is in charge of its day-to-day running, and who reports to the Director; the Director is responsible for strategic planning and for making decisions.
Various personnel in each department report to the Manager. One example, present in almost all companies, is the Sales Representative, who reports to the Sales Manager.
Exercise 1
Below is a diagram showing the structure of a 'mixed' type of multinational company based in the US: some activities are organized into domestic, regional and international divisions, others into worldwide product divisions.
Chief Executive Officer (CEO)
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Now write questions and answers using responsible for/comes under.