Unit 6 b legal forms of organization: how a business is organized

Exercise 1

Pronunciation Practice.

Practise saying the words.

-tion [ʃn]	-sion [ʒn]	-cial [ʃəl] -cient [ʃənt]
organization	decision	financial
regulation	revision	official
contribution	provision	efficient
termination	conclusion	proficient
limitation	division
participation	occasion
corporation
formation
evaluation
indication
initiation

Text Legal Forms of Organization

Pre-reading task: Skim the text and make its plan.

In business, there are many legal forms of organization. The form of organization means the type of ownership. Each form has certain advantages and disadvantages. The choice of the best form for a particular enterprise depends on its capital requirements and the number of owners. The three most common forms are the sole proprietorship, the partnership, and the corporation.

Sole Proprietorship. A sole proprietorship is a business owned and operated by a single person. This single person can start a business by simply purchasing (buying) the necessary goods and equipment and opening up shop. There are very few government and legal regulations (rules) to comply with (follow).

The sole proprietor owns all the assets of the business, but he also has to supply all the capital (money). The owner makes all the decisions about his business but he alone takes the responsibility for incorrect choices. He has the right to keep all the profits of the business, but his legal liability (responsibility) is unlimited: he must use his personal wealth (property) to settle (pay) the debts of the business if he goes bankrupt. The business itself pays no tax, but the owner must pay personal income taxes on his profits. However, if a sole proprietor wants to close his business and start a new one, he simply has to sell his inventory (products or supplies) and equipment, pay his bills, close up shop, and begin a new activity.

Partnership. A partnership consists of two or more people who share the ownership of a business.

A partnership should begin with a legal agreement called the articles of co-partnership and covering the various aspects (parts) of the business, including which assets (property) each partner is contributing (investing) and how the partnership can be changed or terminated (ended). Partners also have to agree on how to run their business.

Partners are like sole proprietors because they own all the assets, make the decisions, and share the profits. They also have unlimited financial liability (total responsibility) in the event of bankruptcy.

But the partnership has an advantage in managerial ability when each partner has a different expertise (knowledge) in an important business area. Besides, the partnership usually has more capital than a sole proprietorship.

Corporation. The corporation is a legal entity (organization). As a legal entity, the corporation can own property that is not a personal wealth of its owners. It can also enter into business agreement on its own.

Forming a corporation is not easy. There are many legal procedures (steps) to follow. The ownership of the corporation is divided into shares of stock (parts of ownership). A corporation can raise large amounts of capital by selling shares of stock. The stockowners vote for a board (group) of directors who hire a president or CEO (Chief Executive Officer) to run the company. The board of directors also decides on how to use the corporation’s profits: for reinvestment or for dividends. The liability of corporation is limited to the value of the assets of the company. If the shareholders want to go out of business, they can simply sell their shares.

The corporation’s activities are closely monitored (watched) by government agencies. The corporation must have good organization for efficient (good) operation. Besides, its profits are taxed twice: once as corporate profits, and then the individual stockholders pay personal income taxes on their dividends (profits from stocks).

Exercise 2

a) Comprehension questions:

1. What does the form of organization mean?

2. What are the differences between the types of organization?

3. What does the sole proprietor own?

4. How many people share the ownership of a partnership?

5. What do the articles of co-partnership indicate?

6. What is the difference in the way corporation raises capital?

7. What happens to the profits of a corporation?

8. How can a stockholder terminate his interest in a corporation?

9. If a corporation goes bankrupt, how does this differ from the bankruptcy of a sole proprietorship or a partnership?

10. What problem is associated with the size of a corporation?

b) Are the statements true or false?

1. A sole proprietor takes all the decisions.

2. His friend gets all the profits.

3. If a sole proprietor goes bankrupt, he has to buy new equipment.

3. Make 3 true/false statements about partnership and corporation.

Exercise 3

Match the English words to their Russian equivalents:

товары и оборудование преимущества и недостатки подоходный налог неограниченная ответственность личная собственность предоставить капитал принимать решения

income tax advantages and disadvantages to make decisions unlimited liability to provide capital personal property goods and equipment

Exercise 4

a) Supply the missing forms of the words.

verbs	nouns
decide
	owner, ownership
	equipment
satisfy
continue
	bankruptcy
	difference

b) Complete the following sentences with the correct verb or noun from the list above.

1. The sole proprietor can ....... for himself if he wants to form a new business.

2. The.......can keep all the profits of the business.

3. The proprietor made a.........to purchase some new.........

4. The sole proprietorship, partnership, and corporation........in the manner in which they raise capital.

5. If the owner makes the wrong decision, it may.........the business.

6. The proprietor does not wish to........his enterprise, because he was unsuccessful and he doesn’t

get any........ from his efforts.

7. It takes capital to purchase inventory and.......the workshop with the necessary tools.

8. We try to........the customers so that they will........to shop here.

Exercise 5

Match the expressions to their definitions or synonyms on the right.

to comply with sole proprietorship to purchase assets is entitled to carry out enterprise

to follow one-owner business to buy things of value to a business is allowed by law to fulfill business

Exercise 6

Match two columns to make word-combinations and translate them:

business government legal personal corporate legal

entity wealth regulations agencies profits agreement

Exercise 7

Complete the sentences in the most suitable way.

1. A partner is...

a) any person who signs any kind of legal document

b) a person or group of people who take part in a legal agreement or dispute.

c) one of two or more people who runs a business.

2. The investor of the public company has a right to sell the shares belonging to him....

a) only with the permission of the Board of Directors.

b) without the consent of other shareholders of the company.

c) only to the shareholders of the same company.

3. A sole/ individual proprietor is...

a) the managing director of the company.

b) an individual doing business on his own behalf.

c) a hired person in charge of the operation of the company.

Exercise 8

Replace the words in italics with expressions from the text which have the same meaning.

1. The sole proprietor may keep all the profits derived from his business.

2. A sole proprietorship is the easiest to initiate and the easiest to terminate.

3. The joint owners owe all the liabilities and pay personal income taxes on their part of the profits.

4. In the case of business failure, the responsibility of the corporation for its debts is limited.

5. The board of directors keeps part of the profits to increase the capital of the

corporation.

6. The stockholders pay personal income taxes on their profits from stock.

7. The activities of the corporation are closely watched by the government.

Exercise 9

Writing. Make a list of advantages and disadvantages of the three legal forms. Share your findings with the group.

Exercise 10

Speaking. Pair work. Work with your partner and discuss which legal form is better for what kind of business, e.g., for a flower shop, an oil company, a law firm. Give arguments to support your statement. Share your opinions with your group mates.

Exercise 11

Speaking. Role play. Work in groups (or pairs). One of you is a lawyer. Advise your clients who want to start a new business which form to choose. Give your pros and cons. Ask your clients questions about their wishes as t the size of the company, availability of capital, responsibility for decision-making, liability. Your clients should ask you about advantages and disadvantages of each of the legal forms and answer your questions and then come to the mutual decision which form to choose.

Exercise 12

Writing. Write a paragraph (200 words) emphasizing the similarities and differences between 2 of the legal forms discussed in the unit.

Compare the legal forms in terms of capital, use of profits, liability, taxation. Use the following models:

Model 1. (Un)like + N, S+V.

Model 2. In contrast to + N, S+V.

Model 3. S+V, but S+V.

e.g. Unlike partnership, corporation has limited liability,

Exercise 13

Grammar focus 10. Passive Voice.

a) Put the verbs in parenthesis into a passive form:

3. The ownership of a corporation _____ _______(to divide) into shares of stock.

4. The liability of a corporation _____ _______(to limit) to the assets of the company.

5. Corporate profits _____ _______(to tax) twice.

b) Find the sentences in the text in Passive Voice, analize them and translate into Russian.

Exercise 14

Grammar focus 11. Conditional sentences (type 2).

IF_______II FORM OF THE VERB, ______WOULD+INFINITIVE______ .

e.g. If they signed the contract tomorrow, they would perform it in time.

Translate the sentences into Russian, pay attention to the Conditional 2:

1. If the proprietor could get credit in the bank he would be able to save his business from bankruptcy.

2. If they wished to form partnership, they would address a lawyer for advice.

3. If they wanted to settle their debts, they would conduct negotiations.

4. If they planned to expand their business, they would reinvest their profits.

5. If the company didn't comply with all regulations, it would get into trouble.

Exercise 15

Speaking. Say, what would you do if:

1. you could speak perfect English?

2. you found burglars in your flat?

3. you lost your job?

4. you found a purse?

5. you met a famous film-star?

6. your friend invited you to the party?