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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
LESSON OBJECTIVES
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.
Partnerships
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.
AMERICAN BUSINESS
ORGANISATIONS
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.
Corporations:
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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