TYPES OF BUSINESS ORGANIZATIONS

The major kinds of business organizations are sole proprietorships, partnerships and corporations.

Sole proprietorships are the most numerous kind of business organization, but most are very small. The reason for their popularity is that they are the easiest and least costly to organize.

Sole proprietors own all the profits of their enterprises, and they are their "own bosses", free to make whatever changes they please. They have minimal legal restrictions and do not have to pay the special taxes placed on corporations. Sole proprietors also have opportunity to achieve success and recognition through their individual efforts.

There are also disadvantages. A very serious one is the unlimited liability that each proprietor faces. All debts and all problems associated with the business belong to the owner. A second disadvantage of the sole proprietorship is that it has limited capital. Also, when the owner dies, the business dies. Other disadvantages may include lack of opportunities for employees, limitations of size and lack of management resources.

A partnership is a business organization that is owned by two or more persons. Partnerships offer certain advantages over sole proprietorships:

* Partners bring additional funds to a proprietorship.

* Partners can bring fresh ideas and talents to business organizations.

* Like the sole proprietorship, partnerships are relatively easy to form and are not subject lo special taxation.

Partnerships have the following disadvantages:

* In many cases, each of the partners is subject to unlimited liability.

* Partners are individually responsible for all the debts of the business.

A corporation is a business organization created under a government charter. Ownership of a corporation is represented by shares of stock, and for that reason corporate owners are known as stockholders. One feature of the corporation is that the courts treat it as a legal "person". It can, for example, sue or be sued and enter into contracts, and it must pay taxes.

CONTRACT

A contract is a business agreement on work to be done, rates to be paid, goods to be sold or bought. It is also a document embodying such an agreement.

A contract forms the basis of a transaction between the Buyers and the Sellers and great care is exercised when the Contract is being prepared that all the legal obligations have been stated. It is concluded either between companies in one and the same country, or internationally.

As a rule the Contract contains a number of clauses, such as:

— legal addresses of the contracting parties;

— the subject matter of the contract;

— a more detailed description of goods: their price, quality and quantity, packing and marking, etc.;

— the terms of delivery;

— the length of duration of the contract;

— the terms and procedure of payment, banking details;

— arbitration;

— claims and their settlement;

— guarantee period (if any);

— other conditions.

All contracts consist of clauses, which are numbered, and sometimes of subclauses, and even of sub-subclauses as well.

MONEY

The main feature of money is its acceptance as the means of payment or medium of exchange. Workers work for money. People buy and sell goods in exchange for money. Money is the medium through which people exchange goods and services.

Money is generally accepted in payment for goods, services, and debts and makes the trading process simpler and more efficient.

Money can also serve as a standard of value. Society considers it convenient to use a monetary unit to determine relative costs of different goods and services. In this function money appears as the unit of account, is the unit in which prices are quoted and accounts are kept.

To be accepted in exchange, money has to be a store of value. Money is a store of value because it can be used to make purchases in the future.

Houses, stamp collections, and interest-bearing bank accounts all serve as stores of value.

Finally, money serves as a standard of deferred payment or a unit of account over time. When you borrow, the amount to be repaid next year is measured in money value.

Money should possess the following qualities:

- Stability. The value of money should be more or less the same today as tomorrow.

- Portability Modern money has to be small enough and light enough for people to carry.

- Durability. The material chosen has to have a reasonable life expectancy.

- Uniformity. Equal denomination of money should have the same value.

- Divisibility. It is the ability to be divided into parts.

- Recognizability. Money should be easily recognized for what it is and hard to copy.

The most important types of money are commodity money, credit money, and fiat money. The value of commodity money is about equal to the value of the material contained in it. The principal materials used for this type of money have been gold, silver, and copper. Credit money are documents with promises by the issuer to pay an equivalent value in the standard monetary metal. Fiat money is paper money the value of which is fixed by government.

The money you are most familiar with, currency, consists of the paper money and coins that you almost use daily.

Ukrainian currency “hryvnia” was introduced on September 2, 1996, right after the celebration of Ukraine Independence Day. It replaced the old "Coupon" (or "Karbovanets") which was a temporary bill in Ukraine for the period it was leaving the rouble zone. Old coupons were changed at fixed rate 100 000 coupons for 1 Hryvnia since September 15 and now it is the only legal tender in Ukraine.

There are bills for 1, 2, 5, 10, 20, 50, 100, 200 and 500 Hryvnias. There are also coins called "kopiyka" for 1, 2, 5, 10, 25, 50 kopiykas (1 kopiyka is equal to 1/100 of Hryvnia) and one Hryvnia.

Bills of 1, 2, 5, 10 and 20 Hryvnias marked with year 1992 were designed and printed in Canada. Bills of 1 Hryvnia (alternative design), 50, 100, 200 and 500 Hryvnias were designed and printed already in Ukraine in 1994.

Hryvnia can be freely converted to hard currency in any authorized bank or exchange point.

There are several protection layers in Hryvnia bills. Every year the National Bank of Ukraine releases the new design of 2, 5, 10, 20, 50, 100 and 500 Hryvnia bills to increase their protection from falsification.

BANKING

A bank is a business. But unlike some businesses, banks do not manufacture products or extract natural resources from the earth. Banks sell services – financial services such as car loans, home mortgage loans, business loans, checking accounts, and credit card services. Banks act as go-betweens for people who save and people who need to borrow. The money does not belong to the bank’s president board of directors, or stockholders. It belongs to the depositors. That’s why bankers have a special obligation not to take big risks when they make loans.

No one knows who started the world’s first bank, but it is safe to say that banking has its roots in the early trading civilization of the Mediterranean.

The owners are the shareholders. All banks are organized on the joint stock principle and are registered public companies. The Chairman and the Board of Directors are elected by the ordinary shareholders at the Annual General Meeting and are responsible for the efficient management of the bank. A bank publishes its Report and Accounts and sends it to every shareholder, from which they can easily determine the total profits the bank has earned and how much is available for distribution.

There are commercial banks, saving banks, saving and loan associations, cooperative banks, and credit unions. They now offer many of the same services, but once upon a time they were very different form one another. Commercial banks originally concentrated on meeting the needs of business and industry. Saving banks, saving and loan associations, cooperative banks and credit unions are classified as thrift institutions or “thrifts” rather than banks. Originally, they concentrated on serving people whose banking needs were ignored or unmet by commercial banks.

Saving accounts are for people who want to keep their money in a safe place and earn interest at the same time. Checking accounts or current accounts offer safety and convenience. You keep your money in a checking account and write a check when you want to pay a bill or transfer some of your money to someone else. Certificates of deposits are savings deposits that require customers to keep a certain amount of money in the bank for a fixed period of time.

BUSINESS PLANNING

The aim of business plans is to validate an idea and challenge every aspect of the business.

A business plan is a written presentation that carefully explains the business, its management team, its products or services, and its goals, together with strategies for reaching the goals.

A business plan allocates resources and measures the results of your actions, helping you set realistic goals and make decisions.

A sound plan can act as:

- A reality check

- A performance tool

- A motivation tool

- A management development tool

- A road map

There are two primary purposes of a business plan. The first has an outside objective to obtain funding. The second serves as an inside purpose to provide a plan for business development.

The business plan is considered an instrument for receiving financial sources, be they investors or lenders. The business plan must be well prepared, professional in tone, and persuasive in conveying the company's potential.

A good business plan is the cornerstone of successful financing.

The business plan should be specifically directed to the funding source and satisfy its particular concerns.

Every successful business plan should include the following essential elements:

- Cover Sheet

- Table of Contents

- Executive Summary

- History

- Product or Service

- Market Description and Analysis

- Marketing Strategy

- Operations Plan

- Research and Development

- Schedule

- Management

- Finances

- Appendix

ACCOUNTING

Accounting is often called the “language of business” because of its ability to communicate financial information about the organization. Various interested parties, such as managers, potential investors, creditors, and the government, depend on a company’s accounting system to help them make informed financial decisions. An effective accounting system must include accurate collecting, recording, classifying, summarizing, interpreting, and reporting of information on the financial status of an organization.

The accounting process follows accounting principles and rules. Incoming money (revenues) and outgoing money (expenditures) are carefully monitored, and transactions are summarized in financial statements, which reflect the major financial activities of an organization.

People who specialize in the field of accounting are known as bookkeepers and accountants. Bookkeepers deal in taxes and different business transactions of the company. The accountant’s responsibility is to analyze and interpret the financial data and make it understandable for users.

Through effective application of commonly accepted accounting systems, accountants provide accurate and timely financial information that is necessary for organizational decision-making.

Managerial accounting is used to provide information and analyses to managers within the organization to assist them in decision making. Managerial accounting is concerned with measuring and reporting costs of production, marketing, and other functions (cost accounting); preparing budgets (planning); checking whether or not units are staying within their budgets (controlling); and designing strategies to minimize taxes (tax accounting).

Financial accounting differs from managerial accounting because the information and analyses are for people outside of the organization. This information goes to owners and prospective owners, creditors and lenders, employee unions, customers, suppliers, governmental units, and the general public. These external users are interested in the organisation's profits, its ability to pay its bills, and other financial information. Much of the information is contained in the annual report, a yearly statement of the financial condition and progress of the organization.

TAXES AND TAXATION

Tax is a payment exacted on persons, corporations and other economic entities by a government to help pay for government operations or to discourage the consumption of the goods or services taxed by raising their cost.

Tax base is the money, property and people on whom taxes could be levied.

People are taxed on what they earn, on what they spend, and on what they own. Taxes are numerous. So, taxes can be levied on assets, on incomes, and on expenditures. Inheritance taxes and gift taxes are taxes on assets. Taxes on incomes are important and can be quite progressive. Taxes on expenditures - especially sales and excise taxes - are related to the monetary value of expenditures, not the incomes of those spending the money; they are known to be regressive.

A proportional tax takes amounts of money from people in direct proportion to their income. A regressive tax takes a larger percentage of income from people, the lower their income. A progressive tax takes a larger percentage of income from people, the larger their income.

Direct tax is a tax that is levied on the wealth or income of individuals. Income, wealth and social security charges are examples of direct taxes.

Indirect tax - a tax that is levied on expenditure such as a sales tax imposed at the retail level, excise tax, or value added tax.

The personal tax rate is itself a function of taxable income, and it is useful to distinguish between two different rates. The average tax rate is paid by an individual or by a couple is their income tax divided by total income. The marginal tax rate is the amount of tax the taxpayer would pay on an additional dollar of income.

The following criteria for a "good tax" may be defined.

o Fairness — based on the ability to pay.

o Clarity and certainty - taxpayers should know the rate of the tax and how it is to be paid.

o Convenience of payment - easy for taxpayers to pay and easy for governments to collect.

o Ease of administration - cost of collecting a tax should be low.

o Flexibility - adjusts to economic conditions (in prosperous times the tax should collect more revenue and in hard times less).

CONSUMER

A consumer is a person who buys and uses goods or services to satisfy his or her needs and wants. We all are consumers. As consumers we are very important to businesses and the economy. The buying decisions we make can lead to either success or failure of many businesses. Consumers' wants and needs guide business practices. As a result, businesses expend great efforts to attract and please consumers.

It was not until the middle of the 20^th century that consumer movements to fight against unfair business practices started in America. In 1962 Consumer Bill of Rights was presented to Congress. Later on two more rights were added to the original four. They declared that every consumer had the following rights:

- the right to be informed — to be given the correct information needed to make a choice;

- the right to safety — to be protected from harmful goods and services;

- the right to choose — to be assured of the availability of a variety of goods and services at competitive prices;

- the right to be heard — to be assured that consumer interests will be fully considered by government when laws are being developed and enforced;

- the right to a remedy — the assurance of the right to legal correction of wrongs committed against consumers;

- the right to consumer education — to learn about consumer rights and responsibilities as economic citizens.

These rights underlie many other countries' consumer rights protection policies, Ukraine included, where there are eight following rights, basically covering the same points. In Ukraine every consumer has the rights:

- to state protection in case their consumer rights being violated;

- to guaranteed level of consumption;

- to the proper quality of goods and services;

- to safety of goods and services;

- to be given the true information about the goods and services, their quality, quantity, variety and the manufacturer (the employee of the business, the salesperson);

- to a remedy or legal correction of wrongs committed to consumers through goods or services;

- to be heard in the court or other appropriate state agencies in case your consumer rights being violated;

- to unite into consumer unions.

SUPPLY AND DEMAND

In a free market economy, prices are determined by the interaction of the forces of supply and demand.

Demand is a consumer's willingness and ability to buy a product or service at a particular time and place.

The law of demand describes the relationship between prices and the quantity of goods and services that would be purchased at each price. It says that all else being equal, more items will be sold at a lower price than at a higher price.

If total revenue increased following a price decrease, demand would be elastic. If the price decrease led to a decrease in total revenue, the demand for the item would be described as inelastic.

The demand for some goods and services will be inelastic for one or more of the following reasons:

— They are necessities.

— It is difficult to find substitutes.

— They are relatively inexpensive.

— It is difficult to delay a purchase.

Sometimes things happen that change the demand for an item at each and every price. When this occurs, we have an increase or a decrease in demand.

Supply is the quantity of goods or services that sellers offer for sale at all possible prices at a particular time and place.

The price at which goods and services actually change hands is known as the equilibrium, or market price. It is the point at which the quantity demanded exactly equals the quantity supplied. Market price can be represented graphically as the point of intersection of the supply and demand curves.

Shifts in demand or supply will affect market price.

Date: 2016-01-03; view: 909