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S Corporation and Limited Liability Company

S Corporation

The S corporation is more attractive to small-business owners than a regular (or C) corporation. That's because an S corporation has some appealing tax benefits and still provides business owners with the liability protection of a corporation. With an S corporation, income and losses are passed through to shareholders and included on their individual tax returns. As a result, there's just one level of federal tax to pay.

S corporations can also have up to 100 shareholders. This makes it possible to have more investors and thus attract more capital.

S corporations do come with some downsides. For example, S corporations are subject to many of the same rules corporations must follow, and that means higher legal and tax service costs. They also must file articles of incorporation, hold directors and shareholders meetings, keep corporate minutes, and allow shareholders to vote on major corporate decisions. The legal and accounting costs of setting up an S corporation are also similar to those for a regular corporation.

Another major difference between a regular corporation and an S corporation is that S corporations can only issue one class of stock. Experts say this can hamper the company's ability to raise capital.

In addition, unlike in a regular corporation, S corporation stock can only be owned by individuals, estates and certain types of trusts. In 1998, tax-exempt organizations such as qualified pension plans were added to the list. This change provides S corporations with even greater access to capital because a number of pension plans are willing to invest in closely held small-business stock.

Limited Liability Company

Limited liability companies, often referred to as "Lacs," have been around since 1977, but their popularity among entrepreneurs is a relatively recent phenomenon. An LLC is a hybrid entity, bringing together some of the best features of partnerships and corporations.

LLCs were created to provide business owners with the liability protection that corporations enjoy without the double taxation. Earnings and losses pass through to the owners and are included on their personal tax returns.

Sound similar to an S corporation? It is, except that an LLC offers business owners even more attractions than an S corporation. For example, there is no limitation on the number of shareholders an LLC can have, unlike an S corporation, which has a limit of 100 shareholders. In addition, any member or owner of the LLC is allowed a full participatory role in the business's operation; in a limited partnership, on the other hand, partners are not permitted any say in the operation.

To set up an LLC, you must file articles of organization. Like partnerships, LLCs do not have perpetual life. Some state statutes stipulate that the company must dissolve after 30 years. Technically, the company dissolves when a member dies, quits or retires.



Another recent development is the limited liability partnership (LLP). With an LLP, the general partners have limited liability. For example, the partners are liable for their own malpractice and not that of their partners. This legal form works well for those involved in a professional practice, such as physicians.

Even after you settle on a business structure, remember that the circumstances that make one type of business organization favorable are always subject to changes in the laws. It makes sense to reassess your form of business from time to time to make sure you are using the one that provides the most benefits.

(This article is an edited excerpt from "Start Your Own Business, Fifth Edition", published by Entrepreneur Press.)

 

Franchise. McDonald's is an example of brand franchising. McDonald's, the franchisor, grants the right to sell McDonald's branded goods to someone wishing to set up their own business, the franchisee. The licence agreement allows McDonald's to insist on manufacturing or operating methods and the quality of the product. This is an arrangement that can suit both parties very well.

Under a McDonald's franchise, McDonald's owns or leases the site and the restaurant building. The franchisee buys the fittings, the equipment and the right to operate the franchise for twenty years. To ensure uniformity throughout the world, all franchisees must use standardised McDonald's branding, menus, design layouts and administration systems.

In return, the franchisee agrees to operate the restaurant in accordance with McDonald's standards of quality, service, cleanliness and value. McDonald's regularly checks the quality of the franchises output and failure to maintain standards could threaten the licence. The franchisee is also expected to become involved in local events and charities. Ray Kroc believed strongly that a business must be prepared to put something back into the community in which it operates. The franchisee, for all the training and support McDonald's offers, is running his or her own business. They fund the franchise themselves and therefore have much to lose as well as gain. This makes them highly motivated and determined to succeed.

Franchising enables McDonald's to enjoy considerably faster growth and the creation of a truly global brand identity. The more restaurants there are, the more McDonald's can benefit from economies of scale.

On the financial side, McDonald's receives a monthly rent, which is calculated on a sliding scale based on the restaurant's sales, i.e. the higher the sales, the higher the percentage and visa versa. There is also a service fee of 5 percent of sales in addition to the contribution to marketing. The purchase price of a restaurant is based on cashflow and is generally about £150,000 upwards. The new franchisee is expected to fund a minimum of 25 percent of this from their own unencumbered funds. (http://businesscasestudies.co.uk/mcdonalds-restaurants/the-route-to-fast-food-franchising/the-advantages-for-the-franchisor.html#axzz3KvGBEmWc)

 

NOTES

IRS – Internal Revenue Service (Управление внутренних доходов/Федеральная налоговая служба США

GLOSSARY

sole proprietor / sole trader / individual entrepreneur / self-employed individual – предприниматель без образования юридического лица, индивидуальный частный предприниматель

partnership – товарищество

general partnership - компания с неограниченной имущественной ответственностью

limited liability partnership (LLP)- партнёрство с ограниченной ответственностью
S corporation – субъект налогообложения, который выплачивает дивиденды собственникам корпоративных прав из операционной прибыли и налог на прибыль которого взимается непосредственно с его акционеров

limited liability company (LLC) - частная акционерная компания с ограниченной ответственностью

public limited corporation - акционерная компания открытого типа с ограниченной ответственностью

estate – наследник; имущество

trust - управление имуществом доверительным собственником

tax-exempt organization - организация, не подлежащая налогообложению

franchise – франшиза, право на производство и продажу продукции другой компании

franchisee – торговое предприятие, пользующееся правом торговать продуктами промышленного производства на льготных условиях

franchisor – промышленное предприятие, заключившее с торговым предприятием договор франшизы

stock – акция

stockholder / shareholder - акционер

common / preferred stocks – обыкновенные / привилегированные акции

closely held - принадлежащий узкому кругу лиц, чьи акции не находятся в свободном обращении на рынке


Text B. ORGANISATIONAL STRUCTURE AND DESIGN


Organizational structure refers to how the workers within a business are organised and how they relate to each other. A visual representation of the structure can be shown in an organisation chart. This shows who has authority over whom and the different roles that workers carry out.

 

Certain organizational structures suit particular types of organizations. This will depend on the size of the business, its aims and the way it sees itself (known as its corporate culture or image). It may also be affected by the factors outside of its control (external factors) such as the nature and spread of its customers. Structure is often linked to the type of business. For example, it could be organized by:

· product – for instance, a chemical company could be split into paints and plastics.

· function - for instance, departments of finance, marketing, human resources and operations

· geography – this could be by UK region or even internationally e.g. Europe, Asia, America.

It is important for a business to choose a structure that helps it operate efficiently. The structure should also help to achieve the organisation’s aims and objectives and make best use of people and resources. The main types of business structure are:

· Hierarchical (tall) structure.This means that the business is organized in layers, with the higher layers having more authority that those below them. The advantage of a tall structure is that every role is clearly defined. Decisions can be made quickly by those at the top of the organization but communication may be slower as the message has to pass through all the layers.

· Horizontal or flat structure.Here are fewer layers and more people in each layer. Decision making may need to take account of several groups within a layer. However, communication is usually more effective. Flat structures often work well with skilled and motivated workers.

· Matrix structures.Sometimes the business needs to use people with a variety of skills who are drawn from many parts or functional areas of the business such as marketing, operations, finance and human resources. These can be organized into teams to complete projects.

A matrix structure is one whose design overlays product departmentation onto a functional structure. The organisation has traditional functional departments (the columns of the matrix), and each employee belongs to one of those deprtments. The organization also assigns project (product) managers to lead projects involving each of the functional areas (the rows of matrix). Thus, members of the functional departments are assigned to work on the projects under the direction of the project managers. In most cases, the matrix design is used for only a part of an organisation.

The biggest problem with the matrix design is that employees report to at least two managers: their functional or geographic and the project or product manager. If employees are assigned to work on more than one project, they report to even more people. Such arrangements lack unity of command. Employees may become confused, and decision making may stall. In addition, because project groups bring together employees from several functions, they tend to experience more conflict than functional units would. Together the dual chain of command and extensive conflict require that employees in a matrix structure be skilled at communication and conflict resolution. Finally the matrix design has a high level of interdependence, so management must devote more effort to coordination.

Organizational structure is the arrangement of positions and groups of positions within the organization. It is described in such terms as reporting relationships, patterns of interaction, and distribution of responsibilities. It is the manager’s responsibility to design an organization so that the strategy, culture, human resource management practices, size, technology, and structure fit together. This process is known asorganizational design. The organizational structure is therefore one part of the design of the organization. Changes inside and outside the organization may require changing the structure to realign it with the organization’s strategy.

Aligning structure with strategy can provide such practical benefits as clear expectations, an appropriate level of autonomy, and a basis for communication among interdependent employees.

Small organizations are often U-form organizations (or functional designs), meaning that they have a design based on functional departmentation, often for a single-product strategy (The U in U-form stands for unity.) A vice president of each functional area reports to the organisation’s president. The president has the challenge of coordinating the organisation’s functions.

An organization involved in several unrelated businesses uses H-form organization, or conglomerate, a design based on product departmentation, with the products being the organisation’s various businesses. (The H in H-form stands for hybrid.) Each line of business operates nearly independently of the others and is headed by a company president or a divisional executive responsible for all functions of the business.

 

 

M-form organizations, also called divisional design, do not diversify widely but specialize in particular industries. (The M stands for modular.) This type of design is based on product departmentation with most or all of the organisation’s business units in the same or related industry. An example is Chrysler, which has four product divisions: large cars, minivans, small cars, and Jeeps/trucks.

 

Whatever the structure, there are certain key features that are common:

· Span of control – the people for whom a manager is directly responsible. A narrow span means tight control; a wide span can provide more opportunity for employees to contribute. This can lead to better motivation. There are narrow spans of control in tall structures and wide spans of control in flatter organizations.

· Chain of command – how authority passes down the organization. It also shows who has power delegated (or passed down) to them. An organisation’s chain of command defines whose activities a manager may direct (authority) as well as whose outcomes the manager is responsible for (accountability).

· Accountability – who makes decisions and takes responsibility for outcomes.

· Communication channels – the way in which messages are passed up, down and across an organization. It is also vital that the message is spread outside the organization. For this, some companies use cutting-edge communication techniques. Open and effective communication is crucial for all organisations and is affected by the span of control. A narrow span of control in tall hierarchical organisations can lead to communication problems because of the large number of layers between the top and the bottom. These tall hierarchical structures can also be rigid and inflexible. This can stifle ideas, innovation and creativity. In contrast, a wider span of control encourages and involves employees. This helps to generate ideas and promote new ways of thinking.

When the organization creates a hierarchy, it establishes a chain of command. Simply put, the chain of command indicates who reports to whom.

If a manager or nonmanagerial employee lacks the authority to make a particular decision or take a particular action, the matter must pass up the chain of command until it reaches someone aho has the necessary authority. Likewise, managers are usually expected to take responsibility for problems and decisions below them on the chain of command; they may delegate the problem solving, decision making, or implementation, but they are accountale for the results.

Violating the chain of command by ignoring it or skipping a level is a serios offense in most organizations.

The degree to which hierarchy plays a role in coordination depends on the organisation’s use of centralization, that is, the concentration of authority and decision making at the top of the organization. Top managers make many decisions covering a wide scope of activities. Employees further down the hierarchy must obtain approval before they can act.

At least in the United States, managers have liked centralization because the control it gives them reduces uncertainty. In addition, limiting the number of people involved can speed up the process of making some kinds of decisions – a benefit that is especially relevant to organizations in fast-changing industries. Centralization can also enable managers to ensure that decisions are consistent.

Nevertheless, many organizations see greater benefits in empowering their employees. For instance, they may conclude that employees with specialized knowledge or extensive customer contact can make better decisions in many areas than top management can.

 

NOTES

1. U-form organization - унитарная организация

2. H-form organization – смешанная форма организации

3. M-form organization - матричная

4. to stall – препятствовать, тянуть время

5. cutting-edge - самый передовой

6. accountability - подотчётность

7. span of control - количество подчинённых на одного руководителя

8. chain of command – система подчинения

 

ACTIVE VOCABULARY

 

align – строить; перестроить; выстраивать; выровнять; присоединяться; располагать по одной линии

~ oneself with – действовать заодно; присоединяться

~with - приводить в соответствие; поддерживать

 

realign – реконструировать; перестраивать, изменять

realignment - перестройка; преобразование; перегруппировка

 

assign- назначать на должность; возлагать обязанности; передавать в распоряжение

~a job / to - назначать на должность

assignment – назначение; назначение на должность; предоставление; передача прав и перевод обязательств/долга

administrative ~s - административные назначения

~of title - передача права собственности

job ~- распределение работы

 

comply –исполнять, подчиняться, соответствовать

~ with - отвечать требованиям, не нарушать

~ with decision - подчиняться решению

~ with something - действовать в соответствии с

~ with the dress code - соблюдать дресс-код

compliance - соблюдение установленных требований

close ~ - тщательное соблюдение , строгое соответствие

fiscal ~ - налоговые обязательства

in ~ with - в соответствии с чем-либо

 

departmentalize– департаментализировать, делить что-л. на отделы, подразделения, округа и т. п., напр., разбивать организацию на функциональные отделы, магазин — на отделы, представляющие разные виды продукции, и т. д.

departmental- относящийся к определённому отделу

departmentalism- соблюдение ведомственных интересов

departmentally – бюрократически, узковедомственно

departmentation – построение организации

~ matrix - матричная структура предприятия

divisional ~ - дивизиональная организационная структура

functional ~ - функциональная организационная структура

product ~ - продуктовая организационная структура

project ~ - формирование подразделений проекта

territotial ~ - региональная организационная структура

   
   
   
   
   

entity– организация; субъект; структура

a person or ~ - физическое или юридическое лицо

legal ~ - юридическое лицо

~ in charge - подведомственная организация

hybrid ~ - гибридная структура (1. Образование, признаваемое для целей налогообложения прозрачным (напр., товариществом) в одной юрисдикции и непрозрачным (напр., компанией) в другой. 2. Образование, сочетающее черты компании и товарищества (напр., компания с неограниченной ответственностью ее участников)

 

liable / bound / obliged - связанный обязательством

be (held) ~ for - нести ответственность за

be personally ~ - нести персональную ответственность

~ / to taxation - подлежащий налогообложению

liability – ответственность, обязательство; ответственность по претензиям

assume ~ - принимать на себя обязательство

corporate ~ - ответственность юридического лица; коллективная ответственность

legal ~- правовая ответственность

limit(ed) ~ - ограниченная ответственность

~ protection - защита от ответственности

 

II. GRAMMAR EXERSISES

Task 1. Complete the text withhave to, don’t have to, can, can’t, should orshouldn’tusing each item once.

I’d like to take this opportunity to explain some of the procedures that we have here. First of all, vacation time. All employee get twenty days paid leave per year. You (1) __________ take all the days in one calendar year – it’s quite OK to carry days forward to the next year, up to a maximum of ten days. We try to be flexible and give you the days you want, and the only real restriction is that you (2) ___________ keep having two weeks in August year after year – someone has to be here over the summer to keep the business running. Next, fire drills. Government regulations state that we (3) _____________ organise a fire drill once a month at random times and with no warning to staff. When you hear the bells, don’t ignore them. You (4) ____________ leave the building immediately, using the emergency fire exits. These are clearly signed in the rooms and corridors. If you are away from your desk, you (5) _____________ go back to collect personal belongings – this would be very risky in the event of a real fire. And finally, trade union membership. This is entirely your own choice. You (6) __________ join the union if you want to, but it’s not compulsory. About 60% of our employees belong to a union, and we work closely with the union representatives on matters such as pay and health and safety. OK, I think that covers everything. Does anyone have any questions?

(Paul Emmerson Business Grammar Builder)

 






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