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МІНІСТЕРСТВО ОСВІТИ І НАУКИ УКРАЇНИ

МІНІСТЕРСТВО ВНУТРІШНІХ СПРАВ УКРАЇНИ

ЛУГАНСЬКИЙ ДЕРЖАВНИЙ УНІВЕРСИТЕТ ВНУТРІШНІХ СПРАВ

ІМЕНІ Е. О. ДІДОРЕНКА

МЕТОДИЧНІ МАТЕРІАЛИ

ДЛЯ ОРГАНІЗАЦІЇ САМОСТІЙНОЇ РОБОТИ

З СПЕЦКУРСУ З ІНОЗЕМНОЇ МОВИ (АНГЛІЙСЬКОЇ)

ЗА ТЕМОЮ «ФОРМИ ОРГАНІЗАЦІЇ БІЗНЕСУ»

ЛУГАНСЬК 2010

Автори: Н.В. Краснова, старший викладач кафедри іноземних мов; О.М. Літвінов, старший викладач кафедри іноземних мов

Рецензенти: О.Д. Форостюк, кандидат юридичних наук, доцент, начальник кафедри конституційного та міжнародного права ЛДУВС імені Е.О. Дідоренка; В.Е. Краснопольський кандидат педагогічних наук, доцент, завідувач кафедри іноземних мов Східноукраїнського національного університету імені Володимира Даля

Методичні рекомендації складено для студентів юридичних факультетів, які вивчають англійську мову за програмою спецкурсу. Мета методичних рекомендацій – ознайомлення студентів з видами бізнес угод та сучасними вимогами до їх оформлення. Методичні рекомендації складаються з двох розділів: теоретичного та практичного спрямування. Інтеграція України до світової спільноти, участь країни в євро інтеграційних процесах викликає необхідність у більш детальному вивченні особливостей цивільного та комерційного права, які регулюють правові аспекти міжнародних комерційних угод. З цією метою до першого розділу включено оригінальні та адаптовані тексти з американських та англійських джерел. Другий розділ передбачає узагальнення вивченого матеріалу, закріплення лексики з теми та розв’язання практичних завдань. Робота з методичними рекомендаціями вимагає опрацювання оригінальних юридичних текстів за фахом, ознайомлення з термінологією з теми, виконання практичних завдань та подальше поглиблення знань з англійської мови.

FORMS OF BUSINESS ORGANIZATION

TEXT 1.

A SOLE PROPRIETORSHIP

There are three principal forms of business organization:

1) sole proprietorship,

2) partnership,

3) corporation.

Of the three, the simplest, most flexible, and easies to start is the sole proprietorship, which is a form of business that is owned and operated by one person. However, that owner may have any number of agents or employees. A sole proprietorship is the most common type of business and is the easiest to form. Typical sole proprietorships are repair shops, small retail stores, and service organizations.

The sole proprietor (owner) has unlimited personal responsibility for the losses, debts, and liabilities that the business may incur. In case of breach of contract or tort, nonexempt personal property as well as the business property of the owner may be taken to pay judgments for damages awarded by courts.

There usually are few formal requirements in establishing a sole proprietorship. However, some sole proprietorship, such as restaurants and motels, are required to have licenses to legally operate as businesses.

Other sole proprietors, such as barbers or plumbers, must have occupational licenses as well as certain types of liability insurance.

Advantages of a Sole Proprietorship

Sole proprietorships offer specific advantages. These advantages include ease of creation, total control, retention of profits, freedom from excessive governmental control, and one-time taxation of profits.

Ease of Creation A sole proprietorship is the easiest form of business association to form. To create a sole proprietorship, a person needs only to begin the operation of the business.

Although some government regulations need to be addressed, most applicable regulations have nothing to do with the actual operation of the business. For instance, it may be necessary to check local zoning regulations or to research governmental licensing requirements. Furthermore, when a sole proprietor decides to hire workers, he or she will have to contact the Internal Revenue Service to obtain an employer identification number, which is assigned for income tax purposes.

Total Control Sole proprietorships offer business owners complete control over the operation of the business. All decisions are up to the sole proprietor. However, a sole proprietor is always free to seek the advice of experts such as accountants, attorneys, and financial planners.

Retention of Profits Another advantage of a sole proprietorship is that the proprietor gets to keep all of the profits that the firm makes. Proprietors must still pay taxes on the profits that they make, however.

Freedom from Excessive Governmental Control As previously noted, a sole proprietorship must follow some government regulations. However, these regulations are not cumbersome when compared to the paperwork associated with limited partnerships, registered limited liability partnerships, corporations, and limited liability companies. A sole proprietorship allows the proprietor to have a great deal of flexibility and leeway.

One-Time Taxation of Profits Sole proprietorships do not pay taxes as a business. Rather, the individual sole proprietor who owns the business pays taxes based upon his or her income. A full-time sole proprietor will pay income taxes on all profits that are made in the course of a year. If the business is only a part-time venture, then those profits plus all other income made by the sole proprietor will be taxed by the government.

Disadvantages of a Sole Proprietorship.

Sole proprietorships have several disadvantages. These disadvantages include limited capital, unlimited liability, limited human resources, and limited lifetime.

Limited Capital An obvious shortcoming of a sole proprietorship is the fact that the business owner has limited access to capital. All money used to finance the business must come from the proprietor’s savings or income, or from loans obtained by the proprietor.

Unlimited Liability Perhaps the biggest disadvantage of a sole proprietorship is unlimited liability. Unlimited liability means that the business owner is responsible for all losses experienced by the business.

Limited Human Resources As the only person responsible for the decisions that affect the business, a sole proprietor is subject to tremendous stress. This stress is multiplied when the owner must make decisions that are outside his or her areas of expertise. Even if he or she consults an expert in such cases, the decision-making responsibility still falls upon the owner.

Limited Lifetime Unlike a corporation, which has perpetual existence, a sole proprietorship lasts only as long as the proprietor. When the proprietor dies or chooses to sell or close the business, the company no longer exists.

Answer the questions:

1. What are the three principal forms of business organization?

2. What is a sole proprietorship?

3. What are the benefits and drawbacks of sole proprietorship?

Task 1

1. Imagine you are a business attorney and have been hired by a new business owner to discuss the legal forms of business association. With a partner, create a role-play in which you are a business attorney, and your partner, a new business owner, has hired you to discuss the legal forms of business association.

2. Perform your dialogue in front of the class.

Task 2

Debate in the class:

Why would a small business owner choose to use a fictitious name instead of his or her own?

Would you like to own a business one day? Why or why not?

TEXT 2.

A PARTNERSHIP

A partnership is an association of two or more persons to carry on, as co-owners, a business for profit. A partnership is based upon a voluntary agreement of the persons, who are called general partners and who are liable for all debts of their firm.

The agreement of the partners need not be in writing unless required by the statute of frauds. The statute of frauds requires writing if a contract cannot be performed within one year from the time it is made.

Therefore if the partners agree at the time they form the partnership that the firm is to last longer than one year, the partnership agreement must be in writing to be enforceable. If the partners do not agree on a specific length of time the partnership is to continue, the firm may continue for more than one year based on a verbal agreement. It is always desirable to put the partnership agreement in writing.

The document containing terms of the agreement is called the partnership agreement (or articles of partnership).

Partnerships can combine and control the capital, labor, skill, and knowledge-of two or more persons.

Partnerships are more flexible and are subject to fewer regulations than corporations.

In a partnership, there is a close relationship and a necessarily heavy reliance of each partner on the others.

Moreover, any partner can bind the partnership by contract or incur liability by torts, and all general partners are liable without limit for firm debts.

A partnership is considered to be an entity, a single unit that:

1. may take title to, and transfer property in its own name;

2. is regarded as a principal, for which each partner may act as agent, making contracts, in the firm name; and

3. must use its own assets to pay its creditors before any individual partner's assets may be seized.

For most purposes, a partnership is considered to be a group of individual partners. Thus:

1. each partner must pay income taxes on his or her share of the net profit even if it is not distributed;

2. the firm must sue and be sued in the name of all the partners;

3. all debts of the firm not paid out of firm assets are chargeable to every partner;

4. when any partner drops out of the firm for any reason, the partnership is dissolved.

Persons often join together for social, political, charitable, educational, or general welfare purposes. They do not conduct business for profit, although they may raise money for their activities. Examples are churches; private schools, clubs, labor unions, and volunteer fire departments. Such groups may be nonprofit associations.

Participating members generally are not liable for debts of the organization. Officers and individual members may voluntarily guarantee its debts. Sometimes such groups organize as nonprofit corporations.

Study the sample of the articles of partnership and give your opinion how the profits and losses will be shared in this partnership.

ARTICLES OF PARTNERSHIP

This agreement, made March 17, 20 – –, between Cecilia Bronislawa of 291 Cedar Lane, Jackson, Mississippi, and Jacob Kowalski and Aaron Kowalski of 1892 Mosley Avenue, Jackson, Mississippi.

1. The above named persons have this day formed a partnership that shall operate under the name of JAC Enterprises, located at 1856 Chadwick Drive, Jackson, Mississippi 39204, and shall engage in manufacturing and selling petroleum products.

2. The duration of this agreement will be for a term of five (5) years, beginning on March 17, 20 – –, or for a shorter term if agreed upon in writing by both partners.

3. The initial investment by each partner will be as follows: Cecilia Bronislawa, cash of $100,000; Jacob Kowalski, cash of $50,000; Aaron Kowalski, cash of $50,000. These investments are partnership property.

4. Each partner will give his or her time, skill, and attention to the operation of this partnership and will engage in no other business enterprise unless permission is granted in writing by the other partners.

5. The salary for each partner will be as follows: Cecilia Bronislawa, $50,000 per year; Jacob Kowalski, $40,000 per year; Aaron Kowalski, $40,000 per year. No partner may withdraw cash or other assets from the business without express permission in writing from the other partners. All profits and losses of the business will be shared as follows: Cecilia Bronislawa, 50 percent; Jacob Kowalski, 25 percent; Aaron Kowalski, 25 percent.

6. Upon the dissolution of the partnership due to termination of this agreement, or to written permission by each of the partners, or to the death or incapacitation of one or all partners, a new contract may be entered into by the partners; or the sole continuing partner has the option to purchase the other partner’s interest in the business at a price that shall not exceed the balance in the terminating partner’s capital account. The payment shall be made in cash in equal quarterly installments from the date of termination.

7. At the conclusion of this contract, unless it is agreed by all partners to continue the operation of the business under a new contract, the assets of the partnership, after the liabilities are paid, will be divided in proportion to the balance in each partner’s capital account on that date.

Cecilia Bronislawa Date

Jacob Kowalski Date

Aaron Kowalski Date

Answer the questions:

  1. What is the aim of partnership?

  2. What is partnership agreement?

  3. What are nonprofit associations?

  4. Are all general partners liable without limit for firm debts?

  5. What questions might the court ask to determine whether certain property belongs to the partnership?

  6. What are the duties of the partners to each other?

Task 1

Debate in the class:

Do you think it is fair that the law holds each partner responsible for the other partners’ actions within the partnership? Why or why not?

How is a business partnership like a marriage? How is it different?

Task 2

Tax Evasion

Richard and Emilio own a plumbing supply business. They sell parts and tools to plumbers, irrigation specialists, and homeowners. Richard files the tax return each year and purposely provides inaccurate information so that neither he nor Emilio will have to pay taxes. Emilio is unaware of what Richard is doing.

Debate in the class:

  • Is Emilio legally responsible for the tax return Richard filed for their business? Why or why not?

  • If the IRS decides to audit the business, is Emilio financially liable for any back taxes? Why or why not?

  • What would you do if you were Emilio and you discovered what Richard was doing?

TEXT 3.

THE KINDS OF PARTNERSHIPS AND PARTNERS

Partnerships may be classified according to their purpose and according to the extent of the liability of the partners. Classified by purpose, partnerships are either trading or nontrading and are either general or special. A trading partnership buys and sells goods and services commercially. A nontrading partnership provides professional and noncommercial assistance, such as legal, medical, or accounting advice. A general partnership conducts a general business such as a retail store; a special partnership may be formed for a single transaction, such as the purchase and resale of a farm.

Sometimes a construction project (for example, a large dam, bridge, or office building) is too big for a single firm. Two or more firms may then associate, combining their resources in a joint venture to complete one complex project only. Because the joint venture is so similar to a partnership, which also may be formed to complete a single job, many courts treat it as such. Another example of a joint venture is a group of individual investors combining their capital and time to acquire a large tract, of land to develop for homes. Death of a member does not dissolve the venture; the venture normally continues until the intended project is finished.

Classified by extent of liability of partners, partnerships are either general or limited. In a, general partnership, all the partners assume full personal liability for debts of the firm, as does a sole proprietor. In a limited partnership, at least one partner must be a general partner, with unlimited liability. However, one or more partners may be limited partners who are liable only to the extent of their investment in the business.

Unlike a general partnership, a limited partnership can be created only by proper execution, recording, and publication of a certificate stating essential facts about the agreement and identifying the partners. Limited partners contribute capital and share profits and losses with general partners. Because limited partners do not share in the managerial control of the business, their liability for firm debts and. losses is limited to the amount of capital they invest. Limited partners who participate in management lose their status and become liable without limit as general partners.

General partners may be further classified as silent, secret, or dormant. A silent partner may be known to the public as a partner but takes no active part in management. A secret partner is not known to the public as a partner yet participates in management. A dormant partner is neither known to the public as a partner nor active in management. All such partners are liable without limit for partnership debts. A nominal partner is not a partner. However, such persons hold themselves out as partners, or let others do so. Consequently, if a partnership liability arises, they are liable as partners. A third party, acting in good faith, may rely on the nominal partner and extend credit to the firm. If so, all partners who consented to the misrepresentation are fully liable, on the legal theory of estoppel. If all members consent, the firm is liable. Parents sometimes become nominal partners to assist children who have taken over the family business.

Five types of partners

Type of

Partner

Participation in the Business

Relationship to the Public

Degree of Liability

General

Active

Known

Unlimited

Secret

Active

Unknown

Unlimited

Silent

Not active

Known

Unlimited

Dormant

Not active

Unknown

Unlimited

Limited

Not active

Known

Limited

Answer the questions:

1. What is a trading partnership?

2. What is a nontrading partnership?

3. What is a special partnership?

4. What is a joint venture?

5. What is the difference between a general partnership and limited partnership?

Give definitions to: silent partner, secret partner, dormant partner and nominal partner.

TEXT 4.

RIGHTS OF PARTNERS AS OWNERS

In the absence of contrary agreement, legal rights of partners are shared equally. Partners may, however, agree as to who shall have particular rights and duties. The principal, rights are:

1. Right to Participate in Management

Every partner, as a co-owner of the business, has an equal right to participate in its management. Acting alone, a partner may buy, sell, hire, fire, and make other routine decisions in carrying on the ordinary day-to-day activities of the firm. In effect, each, partner acts as an agent for the firm and for the other partners. All are bound unless, of course, the partner lacked the necessary authority, and the person with whom the contract was made knew this.

In addition to routine decisions, each partner may do the things normally done by managers, in similar firms. This includes the right to inspect the partnership books at all times, unless otherwise agreed. When a difference of opinion arises as to ordinary matters connected with the business, a majority vote of the partners decides the issue. Unless otherwise agreed, each partner has one vote regardless of the amount of capital contributed. If there is an even number of partners and they split equally on a question, no action can be taken.

EXAMPLE: For several years, Morgan and Bridle had been partners in a bicycle retail and repair business. Morgan wanted to hire two well-qualified mechanics in order to divide the shop work and to give the partners more time for sales promotion. Bridle objected, saying «If you hire; I'll fire ... We can't afford it now.» With the partners deadlocked, no one was hired.

Unanimous agreement of all the partners is required to make any change, however minor, in the written partnership agreement. All partners must also agree to any fundamental change that affects the very nature of the business, for example, changing its principal activity or location. In addition unanimous agreement is required for decisions to:

a. assign partnership property to creditors,

b. confess judgment (allow a plaintiff to obtain a judgment against the firm without a trial),

c. submit a partnership claim or liability to arbitration, and

d. do any act which would make it impossible to carry on the business.

The preceding rules, which govern the use of managerial authority, may be changed by agreement.

Often it is agreed that certain partners will have exclusive control over specific activities, such as selling and purchasing or accounting and finance. By specializing according to talents and interests, work is divided and efficiency is increased.

2. Right to Profits

Partners are entitled to all profits earned. In the absence of contrary agreement, both profits and losses are shared equally regardless of different amounts of capital contributed or time spent. However, the partners may agree to divide the profits and/or the losses in any percentages desired. Outsiders, however, are not bound by such internal agreements and may hold any or all general partners liable without limit for all partnership debts.

3. Right in Partnership Property

Partnership, property consists of all cash and other property originally contributed by the partners as well as all property later acquired for the firm or with the firm's: funds. Such property is held in a special form of co-ownership called: tenancy in partnership. In such a tenancy, each partner is a co-owner of the entire partnership property and is not the sole owner of any part, of it. For example, if a firm of two partners owns two identical trucks, one partner may not claim exclusive ownership of either one of the vehicles. Therefore a partner has no saleable or assignable interest in any particular item of property belonging to the partnerships.

However, the interest of a partner in the firm may be sold or assigned to another party. The buyer or assignee is not a partner but is entitled to the partner's share of the profits, and of the assets, upon dissolution.

Each partner has an equal right to use firm property for partnership1 purposes, but no partner may use firm property for personal purposes unless all other partners consent.