Part III. 1. The sole proprietor often runs a small business

1. The sole proprietor often runs a small business. It is a business that is managed solely by one person. He provides the capital and bears all the risks. There are some advantages in this type of a business unit. The self-interest of the owner will make him work efficiently. He can give personal attention to all aspects of the business and take decisions quickly. The disadvantages include too much dependence on one man. His capital may be small and the expansion of the business will not be rapid. He will be responsible for all the debts of the company.

2. Capital. This word has several definitions. In this lesson it has the same meaning as that of money. It can also be described as wealth used in the production of further wealth. If we want to be more specific, capital consists of machinery, tools, factory buildings, raw materials, partly finished goods and means of transport. Economists consider that capital can be produced by the use of factors of production. These factors are land, labour and capital.

3. Partnership. Like a proprietorship, a partnership is a business unit. Two or more people, called partners, subject to the maximum of twenty, can form it. The partners share the responsibility of managing the business but their share of the profits (or losses) will be proportionate to their capital contribution. A partnership has many of the advantages of a proprietorship. In addition it has greater continuity of existence, for if one partner dies, the others can continue the business. There will also be a greater pool of capital and skills for the use of the partnership.

4. Private company. This is a company whose members enjoy limited liability. A minimum of two and a maximum of fifty shareholders can form such a company. Shareholders cannot dispose of their shares without the consent of the other shareholders. The company cannot invite the public to buy its shares. It is not required to publish its balance sheet for public information.

5. Limited liability. The shareholder of a private as well as a public limited company is liable to its creditors. He is liable to the extent of his capital invested in the paid-up shares. If he owns shares which are partly paid-up, then his liability is limited to the amount outstanding on those shares. British Companies were first granted limited liability protection in 1720. By 1825 the protection was extended to all registered companies. This was the most important factor in the development of the company as a business unit. Prior to this people hesitated to invest in such companies.

6. Share Certificate. This is a certificate issued to a shareholder under the seal of a company, showing his ownership of shares in the company.

7. Public company. A public company is a business unit like a proprietorship and a partnership. It must have a minimum of seven shareholders but there is no limit as to the maximum number. It can make public issues of shares to raise capital and therefore can conduct business on a large scale. Its shares can be bought and sold on the stock exchange.

8. To operate a business. To operate is to manage. It also means to cause to work and to be in action.

The company operates two factories.

John operates the printing press.

The noise of machinery that operates here is deafening.