Read the text and decide whether the statements are true (T) or false (F).

1) If you are a sole proprietor, you are free from the government control.

2) To start business a sole proprietor has to meet a lot of formal requirements.

3) A sole proprietor risks his own money.

4) A general partnership may be formed by at least two persons.

5) Partnerships do not pay federal income tax.

6) In a limited partnership the general partners have very limited rights in its management.

7) In a limited liability companyeach member pays taxes individually.

8) If a private limited company goes out of business, the liability of each shareholder does not exceed the amount that they have contributed.

9) A public limited company can sell its shares only to its shareholders.

10) A corporation is established by Acts of Parliament.

11) The owners of a corporation are its investors.

12) The shareholders play an active part in the day-to-day management of a corporation.

 

Chose the phrase which best completes each statement. Sometimes more than one variant is possible.

1) The state has maximum control over …

a. partnerships

b. corporations

c. public limited companies

d. private limited companies.

2) It is enough to pay a license fee and follow the law if you want to start…

a. limited partnership.

b. sole proprietorship

c. corporation

d. public limited company.

3) You have the greatest liability in case of …

a. corporation.

b. private limited company.

c. sole proprietorship

d. partnership.

4) You are entitled to the highest per cent of profit in case of …

a. limited partnership.

b. sole proprietorship

c. corporation

d. public limited company.

5) This type of business organization has to pay taxes twice ….

a. sole proprietor.

b. partnership.

c. public limited company.

d. corporation.

6) The Partnership Agreement sets out …..

a. the duration of the partnership.

b. the way profits, losses and running costs are distributed.

c. the amount of investment of each partner.

d. the way the partnership is taxed.

7) In a limited partnership the main investors are ….

a. the general partners.

b. the limited partners.

c. the sleeping partners.

8) If this type of a company intends to raise capital, it will sell its shares to the general public ….

a. partnership.

b. corporation.

c. public limited company.

d. private limited company.

9) The shareholders in a corporation ….

a. get profit from the business.

b. participate in the management process.

c. have liability for debts.

d. do not pay personal income tax.

 

 

SPEAKING

Fill in the table writing out advantages and disadvantages of different types of company organization. Say, in what type of company you would like to work. Give reasoning using the table.

	Advantages	Disadvantages
Corporation
Public limited company
Private limited company
Limited partnership
General partnership
Sole proprietor

 

Possible advantages:

1. You have total control of your business.

2. This is a good way of sharing responsibilities.

3. The financial risks are restricted.

4. You can increase your capital by selling shares.

 

Possible disadvantages

1. There is a danger that conflicts of personality could ruin your business.

2. You may not have enough knowledge in economics and law to run your business.

3. It may be difficult to expand.

4. It’s vital to expand your business in order to increase profits and enlarge everybody’s share and you’ll have to work more intensively

5.You may risk your own possessions if the company ruins.

 

ADDITIONAL READING

Text 1

LECTURE ON COMPANY LAW

Part I

In today’s lecture, I’ll be addressing what a corporation is, specifically, how it differs from a sole proprietorship and partnership. A corporation is a separate and distinct legal entity. This means that it can open a bank account, own property and do business, all under its own name. The main advantage of a corporation is that its owners, known as stockholders or shareholders, are not personally liable for its debts and liabilities. For example, if a corporation gets sued and is forced into bankruptcy, the ‘owners’ will not be required to pay the debt with their own money. If the assets of the corporation are not enough to cover the debts, the creditors cannot go after the stockholders, directors or officers of the corporation to recover any shortfall.

A corporation is managed by a board of directors, which is responsible for making major business decisions and overseeing the general affairs of the corporation. These directors are elected by the shareholders of the corporation. The officers, who run the day-to-day operation of the corporation, are appointed by the directors.

One major disadvantage of a traditional corporation is double taxation. It pays corporate tax on its corporate income (the first tax). Then, when the corporation distributes profit to its stockholders, the stockholders pay income tax on those dividends (the second tax). One way to avoid double taxation is to choose to be taxed as a pass-through entity, like a partnership or a sole proprietorship. That way, there is only one level of taxation. The corporate profit ‘passes through’ to the owners, who pay taxes on the profit at their individual tax rates.

Do the task.

Answer the questions:

1. What is the most important advantage of a corporation?

2. What significant disadvantage does the lecturer mention?

3. How can double taxation be avoided?

Text 2

LECTURE ON COMPANY LAW

Part II

As I was saying, corporations enjoy many advantages over other business entities. However, the main advantage of a corporation is that stockholders are not liable for corporate debts. This is the most important characteristics of a corporation. In contrast, in case of a sole proprietorships and partnerships, the owners are personally responsible for the debts of the business. If the assets of the sole proprietorship or partnership cannot satisfy the debt, creditors can go after each owner’s personal bank account, house, etc. to make up the difference. As we’ve seen, if a corporation runs out of funds, its owners are usually not liable.

The second benefit of corporations is self-employment tax savings. Earnings from a sole proprietorship are subject to self-employment taxes. With a corporation, only salaries (and not profits) are subject to such taxes.

The third advantage of a corporation is its continuous life. The life of a corporation, unlike that of a partnership or sole proprietorship, does not expire upon the death of its stockholders, directors or officers. The fourth advantage is the fact that it is easier for a corporation to raise money. A corporation has many avenues to raise capital. It can sell shares, and it can create new types of stock, with different voting or profit characteristics.

The fifth and the last advantage is the ease of transfer. Ownership interest in a corporation may be sold to third parties without disturbing the continued operation of the business. The business of a sole proprietorship or partnership, on the other hand, cannot be sold whole; instead, each of its assets, licenses and permits must be individually transferred, and new bank accounts and tax identification numbers are required.

Right, let us move on to the disadvantages. The first of these drawbacks is the higher costs. Corporations cost more to set up and run than sole proprietorship or partnership. For example, there are the initial formation fees, filing fees and annual state fees.

The second disadvantage is the formal organization and the corporate formalities. A corporation can only be created by filing legal documents with the state. In addition, a corporation must adhere to technical formalities. These include holding board and shareholder meetings, recording minutes, having the board of directors approve major business transactions, and corporate record-keeping. If these formalities are not observed, the stockholders risk losing their personal liability protection. While observing corporate formalities is not difficult, it can be time-consuming. This is not the case with either a sole proprietorship or partnership, both of which can start and operate without any formal organization or operating procedures – not even a written agreement.

The third and final disadvantage is unemployment tax. A stockholder-employee of a corporation is required to pay unemployment insurance taxes on his or her salary, whereas a sole proprietor or partner is not.

 

Do the tasks.

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