III Reading

Exercise 8. Read and translate the text B:

Text B Sole Proprietorship and Partnership

From a legal point of view, there are two simplest ways of organizing a business.

The first is sole proprietorship, sometimes called single proprietorship, or individual proprietorship (in American English). It is the simplest and the cheapest method of starting a business, because a sole proprietor invests his or her own capital and personal assets (anything that belongs to the person), or gets a loan from a bank. He or she alone decides what he or she will do to achieve the objective of any business - profit. So, to start a sole proprietorship, you only require the capital to invest and, of course, knowledge of the local laws.

The advantages of a sole proprietorship are:

• It is easy to start.

• It is inexpensive to start.

• It is flexible, because the sole proprietor himself/herself holds all the authority.

• It is best adapted to a small business because it can provide individualized products and services to their customers.

The disadvantages are:

• It is unlimited in legal liability because the sole proprietor is personally responsible for all the debts and everything that is done in his or her business.

• It lacks stability and continuity because the sole proprietor's disease is a threat to the business, and his or her death usually stops it.

• The difficulty of raising money and the slow growth of the business: it is often difficult to get loans and credits for the business, and it will grow very slowly because one person can only do a limited amount of work.

• It has a high risk of failure because the competition is usually great.

The second simple form of business organization is a partnership. In a partnership, no less than two, and no more than twenty people (according to the British law) pool their property, capital (including intellectual capital), efforts, and managerial talents to do business and gain profits. The co-owners make a written agreement regarding how to invest capital and share dividends, called an Agreement on Capital and Dividends Share. They also write a Statute of their partnership where all the rights and duties of co-owners are regulated. The Statute is a legal document, and its contents are regulated by law. At least one of the partners has unlimited liability, but quite often every co-owner is liable for all the debts of the partnership.

The advantages of a partnership are:

• It is easy to organize.

• It has potential additional sources for raising investment capital because new partners can be added.

• It does not pay corporate tax (tax on the corporation's profits), as the co-owners can use the profits gained as their personal income, and then only pay ordinary income tax for it.

• Every partner may act on behalf of the entire partnership.

The disadvantages are:

· The business suffers if partners have serious and constant disagreements over decision -making.

• Senior partners have unlimited personal liability.

• In case of bankruptcy, the co-owners who invested more capital (the senior partners) lose more than the junior partners do who invested less.

• In case of death or incapacity of a senior (major) partner, the partnership may cease to exist (be dissolved).

• It is often difficult to get rid of a bad partner.