Choosing a legal form of organization

New firm planners do some serious thinking about what legal form to choose for their new endeavor1. This means determining what the status of the business will be in the eyes of the law. The choice has very important consequences2.

Three legal forms (1. single proprietorship3, 2. partnership, 3. corporation) are available4 to small firms. In all cases, all three choices should be looked at carefully. Some of the factors that should affect5 the decision include plans for expansion, product or service being sold, needs for raising6 capital now and in subsequent years, liability characteristics of the planned firm, the proprietor's available investment funds, need for continued life of the firm, alternatives for bringing desired people into the firm, and legal requirements of the particular locality.

THE SOLE PROPRIETORSHIP is a business owned and operated by one person. The owner and the business are synonymous in the eyes of the law. All assets in the firm are owned by the proprietor, subject7 only to the liabilities incurred in its establishment and operation. The proprietor is solely responsible for all personal and business debts and any losses incurred, assumes8 al1 the firm's risks, provides9 most of its capital, and provides its total management. The only requirement for its establishment is that the owner obtain any licenses required by the city, state and start operations.

The proprietorship form has several advantages, such as: 1. Simplicity of organization, 2. Owner's freedom to make all decisions, 3. Owner's enjoyment of all profits, 4. Minimum legal restrictions, 5. Ease of discontinuance, 6. Tax advantages.

Disadvantages of the sole proprietorship: 1. Owner's possible lack of ability and experience, 2. Limited opportunity for employees, 3. Difficulty in raising capital, 4. Limited life of the firm, 5. Unlimited liability of proprietor.

THE PARTNERSHIP is usually defined as an association of two or more persons to carry on as co-owners of a business for profit. Partnerships are based upon a partnership agreement, also known as Articles of Co-partnership. Without a written agreement, the partnership does not really exist. Many circumstances arise which cannot be Foreseen10 and therefore must be anticipated. It should cover all areas of possible disagreement among the partners. It should define the authority and the rights and duties of each partner, and the limits to such authority. It should include an agreement on how profits and losses are to be divided. Partners may make special arrangements11 To pay members of the firm for services rendered, interest12 On capital investment, time spent, or advance drawings13 Before the balance of profits is to be divided in an agreed ratio.

Advantages of the partnership: 1. Ease of organization, 2. Combined talents, judgement, and skills, 3. Larger capital available to the firm, 4. Maximization of personal interest in the firm, 5. Definite legal status of the firm, 6. Tax advantages.

Disadvantages of the partnership: 1. Unlimited liability, 2. Limited life, 3. Divided authority, 4. Danger of disagreement.

THE CORPORATION is an association of stockholders (part owners), formed with government consent14 and having the power to transact business in the same manner as if it were one person. A corporation has the same right as an individual to own property, conduct business, make contacts, sue15, and be sued. A corporation is a single entity16 (an individual person) in the eyes of the law.

Corporations are either closed or public. A small business corporation is usually a closed corporation. This means that capital stock17 is not sold to the public. If one of the stockholders decides to sell stock, it is usually sold to one of the other stockholders or to someone of whom they all approve. In this way, the ownership of the business is selective and controlled.

A public or open corporation offers its stock to the public. This means that its stock is available to anyone who wants to buy it. The principal owner of a public corporation is the majority stockholder.

Advantages of the corporation: 1. Limited liability, 2. Variety of skills, abilities, and ideas, 3. Easy transfer18 of ownership, 4. Ease of expansion, 5. Unlimited existence, 6. Applicability19 for both large and small firms.

Disadvantages of the corporation: 1. Government regulation, 2. Profit sharing20, 3. Complexity and high cost, 4. Lack of freedom of action, 5. Taxes.


Notes: 1. попытка, стремление; 2. последствие; 3. единоличное владение; 4. имеющийся в распоряжении; 5. воздействовать, влиять; 6. занимать (деньги); 7. подвергать (воздействию, влиянию); 8. принимать на себя; 9. снабжать, обеспечивать; 10. предвидеть; 11. договоренность, соглашение, распоряжение; 12. процент; 13. выдача аванса; 14. согласие; 15. преследовать судебным порядком; возбуждать дело против (кого-либо); 16. экономическая единица (напр. фирма), экономический объект; 17. акционерный капитал; 18. передача; передавать; 19. применимость; 20. участие в прибылях.


1. Match the words with their definitions.


1. Money advanced; a payment of part of a sum due before receipt of the goods; to pay money before it is due.

2. The price paid for the use of money such as by a borrower to a lender of money; the money earned by a lender as a reward for allowing the borrower to use his money and for waiting for the repayment of the loan.

3. The entire shares of a joint-stock corporation (comрапу), the holders of which together form the ownership of the concern.

4. Association of two or more persons carrying on business together for the purpose of making a profit.

5. The passing of a right of ownership from one person or organization to another, by an intentional act by a transferor as a sale or gift, or as a result of operation of law, such as bankruptcy or intestacy.

6. An arrangement between the owners of a business and its employees by which an agreed share of the profit is paid to each employee over and above his wages or salary.

7. The one and the only owner of a business. He provides all the capital, bears all the risk, and in return receives all the profits. Such a concern is called a one-man business, although the proprietor may employ a number of people.

8. An attempt to do a particular thing, especially something new or original.

9. A complete, separate thing that is not divided and that is not part of anything else.

10. You start a legal case against someone, usually to claim money from them because they have harmed you in some way.

2. Supply the sentences with the missing words


1. The economic... of the computer revolution are unforeseeable.

2. More information becomes... through the use of computers.

3. I made a mistake and I will... responsibility for it.

4. He made an... to rent the property.

5. We intend to... economic sanctions.

6. There was a basis for... between the two parties.

7. Computers can... our lives in different ways.

8. The government cannot... all young people with a job.

9. Your gift will be... to tax.

10. Do you... any problems with the new system?

3. Complete each sentence with the correct form of take And a word from the list below. Use each word once only.

Call down on seriously

Chair further out steps

Charge home over up

Consideration off risk

1. You should … an additional policy covering you against accidental damage.

2. We had to … extra staff during the holiday season.

3. When all the transport costs have been … into … we have in fact made a loss.

4. Sales really … after the product had been mentioned on television.

5. A good sales rep can … over £500 a week.

6. If my phone rings, could you … the … for me?

7. We must … to see that we don't lose our market share as a result of this increased competition.

8. If the boss is ill, who'll … the … at the meeting?

9. He didn't seem to … the threat of redundancy very … .

10. Don't … this … Angela. I'm just thinking aloud.

11. In 1988 we were … by a large multi-national company.

12. If the account is not settled within seven days, we shall be obliged to … the matter ….

13. Mrs. Jenkins has been appointed to … of our Canterbury branch.

14. I'm not sure if there is a market for this kind of product but you don't get anywhere without … a … now and again.

15. They decided not to … the option, so we had to look around for other potential purchasers.

4. Complete each of the sentences by using the past form of one of the verbs on the left and combining it with one of the words on the right. Use each verb once only. Some words on the right are used more than once.

Break shut back off

Build take down on

Go hear up out

Sell ring from

1. She ... her business... from one small shop to a chain of department stores.

2. The racking equipment... ... and production was halted for an hour.

3. The new range was so popular that the shop... ... in 2 days.

4. Last year they... ... the factory for three weeks and everybody had to have their holiday at the same time.

5. She ... ... working even though the others had stopped.

6. I ... ... immediately saying I was interested in their offer.

7. My plane... ... four hours late because of fog.

8. I finally... ... our agent in Turkey. He phoned last week.

5. Complete the following sentences by using one of the adjectives below. Use each adjective once only.

Confident efficient permanent relevant

Convenient insolvent redundant significant

1. I'm ... that we'll reach our target without any difficulty.

2. You should be familiar with the regulations... to your work.

3. We must process these orders in a more... way.

4. Unfortunately, the accounts show the company is … .

5. Short-term measures aren't enough. We need a more... solution.

6. The advertising campaign had a... effect on their sales.

7. 100 workers were made... when the factory closed.

8. You couldn't get a more... location than next to the station.

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