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Paul Sparks, Online Business English Lesson Plans, Lesson Material and Ideas for Grade 1 English Conversation Lessons at Xiangtan Normal University...



Lesson 24 - American and British Business


The purpose of this lesson is to discuss the differences between business organisations in Britain, America and China.


British Business Organisations
British business organisations are divided up into two types: PUBLIC SECTOR and PRIVATE SECTOR.


The Public Sector:
Public Sector organisations are financed by the state, for example hospitals, libraries and schools, as well as national defense and the police. they do not operate in order to make a profit.


The Private Sector:
Private Sector organisations are owned by individuals or groups of individuals. These firms can be large or small, owned by one person or by thousands.

Businesses which operate in the private sector have a number of objectives or goals. The owners will want their business to survive in a competitive market. They also want to make a profit - if losses are made in the short term, they may continue to trade in the hope that in the long term the business will improve. Another objective might be to gain a larger market share, they might therefore have to reduce prices in the short term and suffer temporary losses.

Because private sector businesses are set up to make a profit, this encourages people to invest in existing businesses, by buying shares, or to encourage them to set up their own business.


There are four main types of organisation in the private sector:

  • Sole Traders
  • Partnerships
  • Private Limited Companies (Ltd)
  • Public Limited Companies (PLC)


Sole Traders:
These are the most common type of organisation in the UK. They are owned and controlled by only one person. That person provides all the capital (money), and may work alone, or might employ others. Formation of a sole trader business is quite easy. Sole traders normally provide specialist services, such as plumbers, carpenters or hairdressers.


Advantages of Sole Traders:

  • Because the business is small, the money needed to set up the business is often small.
  • It is easy for the owner to keep full control of the business.
  • It is easy to set up as a sole trader, there are few formalities.
  • The owner is the boss, so can make quick decisions without the need to speak to others first.
  • Profits do not have to be shared with others.


Disadvantages of Sole Traders:

  • "Unlimited liability" - if the owner gets into debt they risk losing their personal assets to pay bills.
  • If the owner is ill or dies it is difficult for the business to continue to trade.
  • Typically there are long hours and few holidays.
  • Shortage of money can make it difficult to expand.


This type of business is also easy to set up, however there are some documents to obtain. The partners should write a "Deed of Partnership" which sets out essential details. it will contain details of the number of partners, the type of partnership, the amount of capital given by each partner and how profits or losses are to be shared. If there is no deed of partnership the partners will all receive an equal share if the partnership ends. Partners may work in the business and be paid a salary as well as a share of the profits, or they may only invest in the business, and have no involvement in the day to day running of the business, this type of partner is called a "Sleeping Partner." In a partnership there should be between 2 and 20 partners.

Advantages of Partnerships:

  • Partners can divide control of the business and specialise in certain areas.
  • Responsibility can be shared, so allowing time off and more holidays.
  • Expansion is easier than sole traders as there is more capital to invest.
  • The business can continue if one partner leaves or dies (although the death of a partner will end the partnership - a new partnership will need to be set up for the business to continue.)
Disadvantages of Partnerships:
  • Partnerships also have unlimited liability.
  • Disputes or arguments may take place between partners about the business.
Limited Companies
There are two types of limited company, Private Limited Companies, known as "Ltd" and Public Limited Companies, known as (PLC). Public Limited Companies (PLC's) can sell shares to members of the public on the stock exchange, unlike ordinary limited companies (Ltd) which can not.

Both PLC and Ltd companies must use the abbreviations "PLC" and "Ltd" in their name to show traders and customers that the liability is limited, unlike partnerships or sole traders. Therefore traders or customers can not recover debts from the personal funds of the company shareholders.

Features of Limited Companies:
Both types of limited companies can be formed by a minimum of two shareholders, there is no maximum number of shareholders.
A limited company is a "Separate Legal Entity" from a legal point of view, this means it can take legal action against others in its own name, not the name of the shareholders.
The business can continue if one or more shareholders dies.
Shareholders normally have little say in the running of the business, it is normally the company directors who run the business. Decisions are made by the Board of Directors.
Private limited companies must have their accounts available for inspection at any time.

A PLC has the same advantages as Ltd's, such as greater chance of continuation when a shareholder dies and separate legal identity. The main advantage of a PLC over a Ltd is that it is able to raise capital from the public. The other advantages and disadvantages of a PLC are:

Advantages of PLC's:

  • Benefit from bulk buying (get things cheaper).
  • A PLC can borrow money easier because of its large size.
  • A PLC can easily specialise in various different areas.
Disadvantages of PLC's:
  • The business may be too large, and be inefficient.
  • Ownership can change quickly - takeover bids can be achieved by other companies buying shares.
  • Annual accounts have to be open to public inspection.
  • Shareholders may want short term profits, whilst the directors want to invest profits for long term growth.
  • Formation of a PLC is complicated and expensive.

The Sole Proprietor:
Most businesses are sole proprietorships, they are owned and operated by a single person. In a sole proprietorship, the owner is entirely responsible for the business's success or failure. He or she collects any profits, but if the venture loses money and the business cannot cover the loss, the owner is responsible for paying the bills, even if doing so involves their personal assets.
  • Advantages of Sole Proprietorships: They suit people who like to exercise initiative and be their own bosses. They are flexible, since owners can make decisions quickly without having to consult others. By law, individual proprietors pay fewer taxes than corporations. And customers often are attracted to sole proprietorships, believing an individual who is accountable will do a good job.
  • Disadvantages of Sole Proprietorships: A sole proprietorship legally ends when an owner dies, although someone may inherit the assets and continue to operate the business. Also, since sole proprietorships generally are dependent on the amount of money their owners can save or borrow, they usually lack the resources to develop into large-scale enterprises.
The Business Partnership:
One way to start or expand a venture is to create a partnership with two or more co-owners. Partnerships enable entrepreneurs to pool their talents; one partner may be qualified in production, while another may excel at marketing, for instance. States regulate the rights and duties of partnerships. Co-owners generally sign legal agreements specifying each partner's duties. Partnership agreements also may provide for "silent partners," who invest money in a business but do not take part in its management.
  • Advantages of Partnerships: They are exempt from most reporting requirements the government imposes on corporations, and they are taxed favorably compared with corporations. Partners pay taxes on their personal share of earnings, but their businesses are not taxed. 
  • Disadvantages of Partnerships: Each member is liable for all of a partnership's debts, and the action of any partner legally binds all the others. If one partner looses money from the business, for instance, the others must share in paying the debt. Another major disadvantage can arise if partners have serious and constant disagreements.
Although there are many small and medium-sized companies, big business plays a dominant role in the American economy. In the United States, most large businesses are organized as corporations. A corporation is a specific legal form of business organization, chartered by one of the 50 states and treated under the law like a person. Corporations may own property, sue or be sued in court, and make contracts. By the mid-1990s, more than 40 percent of U.S. families owned common stock, directly or through mutual funds or other intermediaries. But widely dispersed ownership also implies a separation of ownership and control. Because shareholders generally cannot know and manage the full details of a corporation's business, they elect a board of directors to make broad corporate policy. Corporate boards place day-to-day management decisions in the hands of a chief executive officer (CEO), who may also be a board's chairman or president. The CEO supervises other executives, including a number of vice presidents who oversee various corporate functions, as well as the chief financial officer, the chief operating officer, and the chief information officer (CIO). The CIO came onto the corporate scene as high technology became a crucial part of U.S. business affairs in the late 1990s. As long as a CEO has the confidence of the board of directors, he or she generally is permitted a great deal of freedom in running a corporation.
  • Advantages of Corporations: Large companies can supply goods and services to a greater number of people, and they frequently operate more efficiently than small ones, they often can sell their products at lower prices because of the large volume and small costs per unit sold. They have an advantage in the marketplace because many consumers are attracted to well-known brand names, which they believe guarantee a certain level of quality. Because a corporation has legal standing itself, its owners are partially sheltered from responsibility for its actions. Owners of a corporation also have limited financial liability; they are not responsible for corporate debts. Because corporate stock is transferable, a corporation is not damaged by the death or disinterest of a particular owner. The owner can sell his or her shares at any time, or leave them to heirs.
  • Disadvantages of Corporations: Large corporations at times have shown themselves to be inflexible in adapting to changing economic conditions. As distinct legal entities, corporations must pay taxes. The dividends they pay to shareholders, unlike interest on bonds, are not tax-deductible business expenses. And when a corporation distributes these dividends, the stockholders are taxed on the dividends.
There are many ways for corporation to raise money, or capital, such as:
  • Issuing Bonds: A bond is a written promise to pay back a specific amount of money at a certain date or dates in the future. Bondholders receive interest payments at fixed rates on specified dates. Corporations benefit by issuing bonds because the interest rates they must pay investors are generally lower than rates for most other types of borrowing and because interest paid on bonds is considered to be a tax-deductible business expense. However, corporations must make interest payments even when they are not showing profits.
  • Issuing Preferred Stock: A company may choose to issue new "preferred" stock to raise capital. Buyers of these shares have special status the company encounters financial trouble. If profits are limited, preferred-stock owners will be paid their dividends after bondholders receive their guaranteed interest payments but before any common stock dividends are paid.
  • Selling Common Stock: If a company is in good financial health, it can raise capital by issuing common stock. Typically, investment banks help companies issue stock, agreeing to buy any new shares issued at a set price if the public refuses to buy the stock at a certain minimum price. Some companies pay large dividends, offering investors a steady income. In general, the value of shares increases as investors come to expect corporate earnings to rise.
  • Borrowing: Companies can also raise short-term capital by getting loans from banks or other lenders.
  • Using profits: Companies also can finance their operations by retaining their earnings. Some corporations, especially electric, gas, and other utilities, pay out most of their profits as dividends to their stockholders. Others distribute, say, 50 percent of earnings to shareholders in dividends, keeping the rest to pay for operations and expansion. Still other corporations, often the smaller ones, prefer to reinvest most or all of their net income in research and expansion, hoping to reward investors by rapidly increasing the value of their shares.

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