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SOLE PROPRIETORSHIP.

 When you decide to set up a business, you should understand what forms of business exist, what their advantages and drawbacks are and what form of business is more preferable for you and fully satisfies your needs. One of the most common forms of business is a sole proprietorship or a sole trader. Sole proprietorship is a form of business which is owned and run by one person who receives all the profits and bears all the liabilities of the business. Sole traders can be found in different types of production. The proportion of sole traders in the service sector is especially high which is understandable because the majority of sole traders are small time businessmen and once an individual wants to set up a small business, it`s much easier to scan the local market for opportunities and find a niche which is not yet saturated with competing companies. They supply a wide range of services, such as hairdressing, retailing, restaurants, gardening and other household services. Many sole traders exist in retailing and construction, where a very large number of shops and small construction companies are each owned by one person. Although there are many more sole traders than any other type of business, the amount they contribute to total output in the UK is relatively small. Setting up as a sole trader is straightforward. There are no legal formalities needed. However, sole traders or self-employed entrepreneurs do have some legal responsibilities once they become established. In addition, some types of business need to obtain special permission before trading.

Sole traders have a number of advantages:

The lack of legal restrictions. The sole trader (who is self-employed) will not face a lengthy period of setting up a business or incur expensive administrative costs. He obtains a license and starts his business with his own capital and labour. The legal procedures for starting a proprietorship are usually limited to registering the company’s name so as to avoid duplicate names. The legal form is not to be indicated in the name of the firm. 2. Sole proprietorships can be set up with little or no money in the business. They don’t cost anything to set up. So the capital cost of creating a sole proprietorship can be minimal. 3. Once the proprietorship is in business, accounting is simplified by the fact that income to the firm is counted as income to the owner. The tax situation is also the simplest one. Income to the firm is taxed as income of the owner. Any profit made after tax is kept by the owner.6 4. Being entirely responsible for all aspects of the management of his business the owner makes independent decisions. He himself decides upon his vacation, working hours, salary, hiring and firing. For many sole traders independence is one of the main reasons why they choose to set up in business. 5. The proprietors must keep the books reflecting the results of their business activities. The contents of the books are a commercial secret not accessible to a third party. The books can be made public in case of a lawsuit, insolvency or inheritance. Sole proprietors are not subject to public report therefore it is not possible to get true information of their activities. 6. Because of their small size, sole traders can offer a personal service to their customers. Some people prefer to deal directly with the owner and are prepared to pay a higher price for doing so. 7. Such businesses may be entitled to government support. 8. And a sole trader can go out of business as easily as he goes in. Again no legal procedures are required. The owner simply locks the door and disconnects the phone

PARTNERSHIP .

Although many people going into business form a sole proprietorship, this is not always possible or desirable. Partnership can be a good alternative to a sole proprietorship. A PARTNERSHIP is defined in The Partnership Act of 1890 as the 'relation which subsists between persons carrying on business with common view to profit'. A partnership is set up by an oral or written agreement between people who are usually considered partners. Any business may be operated as a partnership. There are partnerships in professional fields such as medicine, law, accounting, insurance and stock brokerage. There are no legal formalities to complete when a partnership is formed. However, partners may draw up a DEED OF PARTNERSHIP. This is a legal document which states partners' rights in the event of a dispute.

It covers issues such as: 

-how much capital each partner will contribute;

ü  how profits (and losses) will be shared amongst the partners;

ü  the procedure for ending the partnership;

ü  how much control each partner has;

ü  rules for taking on new partners.ü

Partnerships have a number of advantages:

There are no legal formalities to complete when setting up the business. It may seem that like sole proprietorship they are easy to form, as written articles of partnership are not required but recommended. However, because of the need to establish a clear division of authority, avoid disputes, and provide continuity, setting up a partnership may turn out to be rather complex. 2. Like sole proprietorships they are not subject to public report. The partnership can keep its affairs to itself. Its annual accounts do not have to be submitted to anyone other than the Inland Revenue. 3. Partnerships are more advantageous than sole proprietorships if one needs to multiply sources of capital. Since this type of business tends to be larger than the sole trader, it is in a stronger position to raise more money from outside the business. They often receive favoured treatment by the government as well as tax benefits. 4. Each partner can specialize. You can invest less capital than your partner or even no money at all. But you as a partner can contribute important services or skills. Thus, the introduction of new partners allows specialization, and can add a new dimension to a business. This may improve the running of the business, as partners can carry out the tasks they do best. 5. Partners can share the work. They will be able to cover each other for holidays and illness. They can exchange ideas when making key decisions. Also, the success of the business will not depend upon the ability of one person, as is the case with a sole trader.

Disadvantages of partnerships:

The partners like a sole trader, have UNLIMITED LIABILITY. Under the Partnership Act, each partner is equally liable for debts. If the firm goes bankrupt they are all liable for its debts to the extent of their personal wealth. In other words, creditors can be paid either at the expense of the partnership’s property or private property of the members. As each partner is fully liable not only for any debts or wrongdoings of his or her own but for those of all the other partners too, this can be a very serious matter in partnerships of such professionals who can be sued for malpractice. For such partnerships insurance is essential and is a major business expense. The risk of unlimited liability used to deter many people from entrusting their capital to a partnership. But in 1907 Parliament passed the Limited Partnership Act, which allows partners to assume limited liability on the following conditions:13  They take no part in the running of the business (though they do share the profits, ofü course).  There must be at least one general partner who has unlimited liability for the debts of theü business.  The partnership must be registered with the Registrar of Companies.ü  The accounts of a limited liability partnership are open to inspection by the public.ü 2. Profits have to be shared among more owners. 3. Because the business is identified with its owners, a partnership suffers from A LACK OF CONTINUITY. If one of the owners dies or leaves the partnership for some reason, the partnership is at an end and a new one has to be formed. 4. The partnership must be wound up so that the partner's family can retrieve money invested in the business. It is normal for the remaining partners to form a new partnership quickly afterwards. 5. As all partners are entitled to a say in the management of the firm, partnerships have their own PROBLEM OF CONTROL. Each of them may have strong ideas about how things ought to be run. Consequently, there may be disagreements. Any disagreement is to be decided by the majority vote, but this may cause delays damaging to the business. 6. Any decision made by one partner on behalf of the company is legally binding on all other partners. 7. Partnerships have unincorporated status, so partners can be sued by customers. 8. The size of a partnership is limited to a maximum of 20 partners. This limits the amount of money that can be introduced from owners. Further expansion may require the establishment of a limited company.

Limited Companies .

A limited company exists as an independent legal entity, with ownership divided into shares. There are many examples of LIMITED COMPANIES in the UK. They range from Garrick Engineering, a small family business, to British Airways, which has many thousands of shareholders. One feature is that they all have a separate legal identity from their owners. This means that they can own assets, form contracts, employ people, sue and be sued in their own right. Another feature is that the owners all have limited liability. If a limited company has debts, the owners can only lose the money they have invested in the firm. They cannot be forced to use their own money, like sole traders and partners, to pay business debts. The capital of a limited company is divided into shares. The owners of the shares are known as shareholders or stockholders. They are the joint owners of the company and can vote and take a share of the profit. Those with more shares will have more control and can take more profit. Limited companies are run by directors who are appointed by the shareholders. The board of directors, headed by a chairperson, is accountable to shareholders and should run the company as the shareholders wish. If the company's performance does not live up to shareholders' expectations, directors can be voted out at an Annual General Meeting (AGM). Whereas sole traders and partnerships pay income tax on profits, limited companies pay corporation tax. Corporations are the most common type of business. To obtain a state charter the promoters of limited companies must present the following Papers to the Registrar of Companies:  Memorandum of Association governs the company’s relationship with the outside world.ü  Articles of Association control the internal running of the company.ü  Statutory Declaration that states that the promoters of the company have complied withü the requirements of the Companies Acts. After the firm is registered with the Registrar of Companies they must appoint a director and a company secretary.22 The principal attraction of business corporations is that the shareholder’s liability is limited to the nominal value of the shares held. In this way, by buying shares, a large number of people can contribute funds to an enterprise without risking all their personal possessions. There are two different kinds of shares: ordinary and preference. The holders of ordinary shares are not guaranteed a dividend at the end of a trading year because this depends on whether or not the company makes a profit. However, they do have voting rights, and elect the board of directors, who are responsible for the general policy of the company. Preference shares offer a safer investment and a fixed dividend out of profits before anything is paid to ordinary shareholders. A company can also issue debentures, on which a fixed rate of interest is paid before preference or ordinary shareholders receive anything. They are normally secured against property owned by the firm, so that in the event of company’s bankruptcy debenture holders are assured of getting their money. Furthermore, as the company has its own legal existence quite separate from that of the shareholders, its continuity is not threatened by the death of one of them. Thus, limited companies have the advantage of independent legal existence, limited liability for shareholders and continuity of the business. Limited companies may be private or public.

THE PRIVATE LIMITED COMPANY .

Private limited companies are one type of limited company. They tend to be relatively small businesses, although certain well-known companies, such as Reebok and Littlewoods, are private limited companies. Shares can only be transferred 'privately' and all shareholders must agree on the transfer. They cannot be advertised for general sale. Private limited companies are often family businesses owned by members of the family or close friends. The directors of these firms tend to be shareholders and are involved in the running of the business. Many manufacturing firms are private limited companies rather than sole traders or partnerships. Prior to the Companies Act 1980 the normal procedure was to establish a private company with a maximum of 50 shareholders. The 1980 Act effectively reversed the standing of companies. The main points to note about private companies now are:  The name of a private limited company must end with the word Limited (Ltd).ü  A private limited company should be registered under the Companies Act and act inü compliance with its Charter.  They are not allowed to sell shares or debentures on the stock market and announce publicü subscription for their shares.23  There is no longer any limit to the number of shareholders.ü American companies are registered or incorporated with the authorities in the state where they have their headquarters. The abbreviation Inc and Corp refer to such companies. To sell shares to the public they must apply to the Securities Exchange Commission (SEC). Let us look at the advantages of forming a private company: 1. The main advantage of a limited company is its independent legal status, and hence the limited liability enjoyed by its shareholders. If the company goes out of business, the responsibility of each shareholder is limited to the amount that they have contributed. 2. More capital can be raised as there is no limit to the number of shareholders. With limited liability the company is able to attract capital from people who would not otherwise be prepared to invest. 3. In a private company the founders of the business can usually keep control of it, by holding a majority of the shares. Therefore control of the company cannot be lost to outsiders. Shares can only be sold to new members if all shareholders agree. 4. The business will continue even if one of the owners dies. In this case shares will be transferred to another owner. 5. There may be tax advantages for the owners, particularly if owners are currently paying the higher rate of income tax. Profits can be retained by the company and distributed to the owners at a later date, for example when they retire. 6. Some businesses may not deal with unlimited businesses or businesses that are not registered for VAT. This is because they think that limited companies registered for VAT are more likely to be run well, since they have to keep proper accounts and tend to use the professional advice of accountants and solicitors. However, there are several drawbacks: 1. Profits have to be shared out among a much larger number of members. 2. There is a legal procedure in setting up the business. This takes time and also costs money. 3. The shareholder in a private limited company can only transfer his shares to someone with the consent of the company, which provides for the close character of the company. 4. The company is not allowed to appeal to the public for extra capital. This restricts the amount of capital that can be raised. 5. The accounts of the company must be filed annually with the Registrar of Companies. They are then available to anyone on payment of a nominal fee. Competitors could use this to their advantage.

Ex.1 Read the text RECRUITMENT and do the tasks below:

 If an employee gives in his resignation notice or a company sacks an unsuitable employee, there is a vacancy to fill and HR manager needs to select the most suitable and well-tailored candidate to fill the post. There are many ways in which an organization can recruit personnel, still the most common are internal and external ways of recruitment. Internal recruitment is when the business looks to fill the vacancy from within its existing workforce. There are quite a few advantages of internal recruitment. First of all, it is cheaper and quicker. Individuals with inside knowledge of how a business operates will need shorter periods of training and time for fitting in. Internal recruitment provides opportunities for advancement which can be motivating as internal promotion acts as an incentive to all staff to work harder. However, internal recruitment limits the number of potential applicants, which means that no new ideas can be introduced from outside. External recruitment is when the business looks to fill the vacancy from outside the business. When recruiting externally, the company will almost certainly have to produce a job advertisement to inform potential candidates about a vacant position, to dissuade unsuitable candidates and to obtain the best qualified for the post advertised. External recruitment makes it possible to draw upon a wider range of talent, and provides the opportunity to bring in new experience and ideas to the business. If companies wish to be dynamic it is essential to inject new blood from time to time. On the other hand, finding a suitable candidate from outside is time-consuming. All applicants need to be interviewed before the best candidate is revealed. Still the selection process may not be effective enough and the company might end up with someone who proves to be less efficient in practice than on paper or in the job interview. Many companies prefer to employ candidates through recruitment agencies. The use of recruitment agencies to assist in finding the right staff is very well developed in the UK. Over 10 000 agencies offer their services, and like any diverse industry, they come in all shapes and sizes. They all have their own data-base and provide employers with details of suitable candidates. Many agencies interview candidates prior to submitting them forward for interview. This helps to reduce the amount of time the company has to spend on interviewing non-relevant candidates. In general, agencies charge a fee calculated as a percentage of the annual salary of a candidate. Headhunter is a term for a third-party recruiter who seeks out candidates when normal recruitment efforts have failed. It is costly to use the services of headhunters (sometimes they charge more than 30% of the candidate`s annual compensation). Due to their high costs, headhunters are usually employed to fill senior management and executive level positions. Current employees are sometimes encouraged to refer friends, family or ex colleagues to fill a particular vacancy. This is particularly true in occupations such as nursing where there is a shortage of trained people. Other valuable sources of recruitment may be university campuses (on-campus recruitment), trade unions and unsolicited applications