INPUT
Listening
1. Listen to an economic report about different types of business organizations and take notes about each type under the following headlines.
2. Do a second listening to add more details to the notes.
Reading
1. Read the texts about business organizations in private and public sectors and add more information to the “spider-graph” about types of business organizations.
THE PRIVATE SECTOR
There are various types of business organizations which operate in the private sector. Firstly, sole traders should be mentioned.
A business run by a sole trader has just one owner, who is entirely responsible for all the company’s business affairs. This type of organization has certain advantages and disadvantages. On the one hand, a sole trader doesn’t have to consult anyone else when making decisions. Also, the profits do not have to be shared with anyone else. But on the other hand, a sole trader has to bear 100 % ofthe risks incurred by his company. For this reason, he may have more difficulties raising capital. A sole trader has unlimited liability for his company which means that if he goes bankrupt he may lose both his company and his personal property.
Another kind of business organization in the private sector is a partnership. A business run by a partnership has two or more owners. When entering into a partnership, an agreement is drawn up defining the rights, responsibilities and liabilities of each partner, such as how the profits are to be distributed and what part each partner is to play in managing the company. The partners may be active, meaning that they are actively involved in the company’s business; or sleeping, which means they invest money in the company and receive a share of the profits, but do not concern themselves with the company’s business affairs.
There are two types of partnerships: a general or ordinary partnership,where all partners have unlimited liability and a limited or special partnership,consisting of at least one general partnerwith unlimited liability and at least one limited partnerwhose liability is limited to thecapital he has invested. The limited partners do not run therisk of losing their personal property if the company goes bankrupt, but neither do they have any say inhow the business is run.
The third commonly accepted type of business organization in the private sector is a joint-stock company. From a legal point of view, a joint-stock company counts as a separate person, which means that its shareholders(owners) and directors(the people chosen by the shareholders to run the company) only have limited liability. The shareholders each receive one dividend(part of the profit) per share.
There are two types of joint-stock companies. The first one is known as a public limited company (plc). The capital for this type of company is raised from members of the public. For this reason, a plc can be listed on the stock exchange,although it doesn’t have to be. Before it can start doing business, a plc needs to have a minimum amount of share capital(in England for example, it needs to issue at least £50,000 worth of shares).
Another type of joint-stock company is a private limited company (Ltd).There are many more private limited companies than public limited companies. The shares of aprivate limited company are held by specially chosen persons or companies, which means it can’t be listed on the stock exchange. However, unlike public limited companies, private limited companies don’t need a minimum amount of share capital – it’s theoretically possible for a private limited company to have just one share held by one person.
THE PUBLIC SECTOR
As we know, firms in the public sector are owned by the government, one example being the post office. However, in certain countries, notably in Britain, there is atrend towards privatization or selling certain government-owned organizations such as the railway and telephone companies back to the private sector. This has both positive and negative aspects. For instance, as firms active in these privatized industries may find themselves in competition with other firms, it is in their interest to make the services provided more efficient, which benefits the customer. The money raised can be used to reduce taxes. The other side of the coin is that as firms in the private sector are mainly interested in making a profit, privatization may make certain services more expensive for the customer. And which is still more, necessary service may not be provided because it is not profitable.
Companies in the public sector have certain similarities to public limited companies. However, there are a few important differences. While public limited companies are owned by the public, public sector companies are owned by the government. The chairman of a plc is chosen by the shareholders, whereas the chairman of a public sector company is chosen by the government. A plc obtains capital by selling shares, a public sector company by selling stocks. The profits earned by a plc go to the shareholders; the profits earned by a public sector company go back to the government. Where the main objective of a plc is to make the largest possible profit, public sector companies are created primarily to provide the public with essential services.
THE SMALL BUSINESS
Today small businesses are the heart of the market economy. There are a great number and variety of small businesses. People become owners and operators of small business firms in one of three ways: start a new firm, buy a franchise, buy or inherit an existing firm.
Small firms have been established to do just about any kind of business imaginable – to manufacture and distribute goods, to sell them at retail, and, of course, to provide all kinds of needed services. Some serve only the local community, while others function in national and international markets.
The vast majority of small firms concentrate on selling material products, although an increasing number of firms provide a service. Although an increasing number operate in local markets, services, too, are exported. In recent years there has been a great increase in the export of services, such as management consulting, medical, and technological services.
The existence of a strong,healthy small business community has always been recognized as the best way to preserve competition, prevent monopolistic control of any industries, and thus assure the population of the benefits of competition through better prices and quality products. Incentives have been provided to assist small firms. The government of the US created the Small Business Administration (SBA) in 1954 to provide financial, management, and procurement assistance for small firms. There are some facts that illustrate the importance of small business. According to the SBA, 99 % of all businesses in the US can be classified as small. 43 % of the gross national product is contributed by small business. While large business has been cutting back employment, small business has been creating new jobs. Many of new products and services in the US are created by small businesses.
There are numerous definitions of the term “small business”. A small business is one which is independently owned and operated and not dominant in its field of operation. A small business is one which possesses at least two of the following four characteristics. The management of the firm is independent. Usually the managers are also the owners. Capital is supplied and the ownership is held by an individual or a small group. The area of operation is mainly local, with the workers and owners living in one home community. However, the markets need not be local. The relative size of the firm within its industry must be small when compared with the biggest units in its field. Of the characteristics cited, most scholars believe that the relative size is the most important.
RUNNING A SMALL FIRM
Small firms actually have advantages over large firms in many cases. One advantage of small firms is that they often grow into large firms. Many of today’s small firms will become giants in tomorrow’s business world.
Some of the situations in which small firms have distinct advantages are the following.
When new products or ideas are being tried, small firms have much flexibility. Decisions can be made and implemented quickly.
When the personal attention of the owner is essential to daily operations, the owner’s presence is important to the growth of the business, the business will be more successful if it is small enough for one person to supervise.
Where personal services, either professional or skilled, are dominant, for example in cases of beauty parlors, real estate offices, interior-decorating firms, TV repair shops, medical and dental services, which are usually rendered by small firms, any possible advantages of large-size firms are usually offset by greatly enlarged overheads, less efficiency on the job, and the loss of the personal touch of the smaller firm.
In some types of firms, where it is just not economical to attempt a scale of operations that exceeds the local market demand, the making of bricks or concrete blocks for the construction industry for example, it is preferable for the product or service market to be mainly local as transportation costs are prohibitive for moving such products.
Some types of products just do not invite large firm development, especially in most cases when the industry is characterized by wide variations in demand or in styles. Examples of these include ladies dress line, ornamental candles, and custom-made chandeliers and lamp shades. The small, flexible firm usually can adjust to the necessary variations of specialized products more easily.
When close rapport with personnel is essential, small firm owners usually have the advantage of being close to employees. They know problems from daily conversations and can adjust employment to a person’s abilities better because of this close association. As a result, they are usually able to maintain better morale and efficiency in the firm, which is important in any business.
There are also disadvantages of running a small firm. Small firms are often said to labor under such disadvantages as the inability to secure competent employees, the inability to cope with monopolistic practices, the inability to finance expansion when it has been proved to be practicable, tax burdens, limited vendor goodwill, discriminatory practices by large shopping-center developers, lack of time for the small proprietor to handle multiple assignment, lack of research facilities, and the problems of making a new firm or product known in its market.
Many of the disadvantages of small firms could be overcome with positive planning. An ill-conceived business, whether large or small, has little chance of success if its operation has not been properly planned, good research in the planning stage can reveal opportunities for success. It can also indicate when a business that is contemplated should not be undertaken.
The rewards for successful small firm ownership can be significant. The personal satisfaction will vary with the individual owner. Good profits, satisfying employment, being one’s own boss, community status, family pride and tradition, and having an outlet for one’s creativity are some of them.
But these rewards are never automatic or guaranteed. Success makes many demands upon the operator of the firm. The requirements for successful ownership of small business firms can be summarized as follows: personal characteristics, good customer relations and knowledge of consumerism, good community relations, business ethics and social responsibility, compliance with government regulations. But sound business knowledge and willingness to work hard stand at the head of any list. Knowing the causes of failure can protect the owner against them. The individual firm has benefited from having these and other advantages. In addition to the types of firms cited, small firms in such fields as construction, wholesaling, retailing and the service industries have faced up well to their larger firm competition. Insurance and small finance firms have also been very successful. The profitable firms have not relied on the inherent advantages of small firms as such, but have combined these advantages with alert and competent management to achieve their success.