2 The Firm and Its Environment



AGENDA

2.1	Lead-in	Prereading
2.2	Language input	Developing vocabulary
2.3	Background information	The Firm and Its Environment
2.4	Comprehension	Skimming Scanning Understanding the reading
2.5	Speaking & Writing
	Language focus	Word-building: Countries and nationality adjectives
	Skills Focus	Translator's "false friends"
	Presenting information
2.6	Dialogue 1	Types of securities
	Dialogue 2	Mergers, Takeovers, Acquisitions
2.7	Reading for Cross-cultural Associations	New Product Development
2.8	Case study & Role play 1	The merits and demerits of reorganization:
	Role play 2	A management/ employee conflict
2.9	Grammar Back-up	The ing-Form & Past Participle
	Writing Essays
	Topics for Power Point presentations Glossary Progress Check

2.1 LEAD-IN

Section Overview

The major actors in a company’s micro-environments are the company itself, suppliers, market intermediaries, customers and competitors. In this section, you will learn how small and large businesses are organized and what challenges they face.

2.2 LANGUAGE INPUT

article n articles Articles of Association	статья, пункт, параграф устав, договор, соглашение устав акционерной компании
asset n assets	актив(ы) средства, имущество, активы, фонды, капитал, ресурсы, достояние
bankrupt n bankrupt v bankruptcy n	банкрот, несостоятельный должник довести до банкротства, разорить банкротство, несостоятельность
bid n	заявка; тендер; предложение цены
takeover bid	предложение о поглощении (предложение о покупке контрольного пакета акций, сделанное акционерам поглощаемой компании)
bid v (for)	предлагать цену (обычно на аукционе) ; принимать участие в торгах
biddern	(компания-)покупатель (компания, выступающая инициатором поглощения)
board n a board of directors	орган управления, совет, департамент, министерство, управление совет директоров, правление
bond n	облигация, закладная; долговое обязательство, долговая расписка
capital n	капитал (разность между активами и обязательствами); собственные средства владельца предприятия; основные средства
authorized share capital	разрешенный к выпуску акционерный капитал
borrowed (debenture) capital	одолженные средства, заемный капитал
current / working capital	оборотный капитал
fixed capital	основной капитал
capitaladj	относящийся к капиталу
capital assets=fixed assets	основные средства/фонды, матери-альные внеоборотные (долгосрочные) активы, основной капитал
capital gains	доход(ы) от прироста капитала
capital goods	средства производства, инвестиционные (капитальные) товары (производственное оборудование, завод, другие хозяйственные постройки, административные помещения и т. п.)
charter n	уставные документы корпорации; свидетельство о государственной регистрации;
a charter of incorporation	устав и сертификат об инкорпорации (лицензия)
corporation n	корпорация; в США – акционерная компания с ограниченной ответственностью
dividend n	дивиденд: часть прибыли компании, распределяемая среди акционеров;
entrepreneurn	предприниматель, владелец предприятия
entrepreneurshipn	предпринимательство
equityn syn net worth	акционерный капитал, собственный капитал, чистый капитал; право на активы; обыкновенная акция
owner’s equity = shareholder/ equity = stockholder equity	собственный (акционерный) капитал (компании), уставной фонд
equity finance	финансирование проектов путем выпуска акций
equity (stock) market	рынок ценных бумаг
file v	регистрировать, подшивать; подавать заявку, представлять документ
fine v	штрафовать, налагать штраф
gearing Amer.synleverage	доля заемного капитала в собственном капитале компании; гиринг (отношение заемного капитала к собственному капиталу)
gearing adjustment	корректировка доли собственного капитала
high-geared company	компания с большой долговой нагрузкой (с большой долей заемного капитала)
hedgingn	хеджирование, страхование от потерь
hierarchyn hierarchical	иерархия, «служебная лестница» иерархический
inventory n	запасы товаров, сырья и готовой продукции компании; портфель ценных бумаг (физического лица)
legal adj	правовой, юридический; законный; узаконенный; легальный
legislature n synlegislative	законодательная власть; законодательные учреждения
legislative adj	законодательный, введённый законом, назначенный законом
liability n limited liability	обязательства; долги; задолженность; пассив; ответственность, обязанность ограниченная ответственность (акционера)
public limited company (plc.)	открытое акционерное общество, открытая (публичная) компания с ограниченной ответственностью (общество, акции которого находятся в открытой продаже на фондовой бирже; его учредители отвечают по обязательствам общества только в пределах своих вкладов в его уставной капитал)
margin n	разница (между себестоимостью и продажной ценой), маржа; прибыль; предел (доходности); запас денег, мощность
memorandum n	меморандум
memorandum of association	меморандум об ассоциации: (Бр. – документ, представляемый для регистрации новой компании), устав юридического лица, устав акционерного общества
overdraft n	превышение кредита (в банке); овердрафт; задолженность банку
overdraft facility	возможность списания со счета большей суммы, чем имевшийся к моменту списания остаток средств
ownershipn	собственность, владение; право собственности
partnership n	партнерство, товарищество (фирма, которой владеют и управляют два лица или более)
premises n	недвижимость, здания с прилегающими постройками и участками
proprietorship n	право собственности, собственность; владение, хозяйство
sole proprietorship syn personal property	единоличное владение, единоличное хозяйство
Registrar n	регистратор акций; регистратор облигаций; служащий отдела записи актов гражданского состояния
sharen	доля, часть, доля участия, пай; акция
stock n	запас; акция
share of stock	акция, доля в акционерном капитале
stockholder/shareholder	акционер
suev	подавать в суд, вчинить иск
trade v	торговать; делать покупки; обменивать(ся)
insider trading	инсайдерные торговые операции с ценными бумагами (незаконные операции с ценными бумагами на основе внутренней информации о деятельности компании-эмитента)
venture n venture v	рискованное предприятие; спекуляция; коммерческое предприятие рисковать, спекулировать
venture capital	«рисковый капитал» - вкладываемый в проекты с повышенным уровнем риска
joint venture	совместное предприятие

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DEVELOPING VOCABULARY

2.2.1 Consult a dictionary and practise the pronunciation of the following words and word combinations, quote the sentences in which they are used in the text or submit the examples of your own:

Articles of Association assets and liabilities authority characteristics charter of incorporation consequently contingency detailed records dividend entrepreneur entrepreneurship fiduciary hierarchical high-geared company inventory

legal entity legislative legislature liability for debts margin obsolete equipment ownership transfer profile of a company sole proprietorship the case of bankruptcy the gearing of the company the registrar of companies three-year tenure to be sued venture capital institutions

2.2.2 Match the English word combinations in the left-hand column with the Russian equivalents in the right-hand column:

1.	to be liable for the amount of capital invested	A	полное товарищество (с неограниченной ответственностью)
2.	a sole proprietorship	B	кассовый разрыв
3.	to hire and fire workers	C	норма прибыли на акцию / облигацию
4.	the rate of return on stocks / bonds	D	выступать в качестве ответчика в суде, быть оштрафованным, облагаться налогом
5.	to be sued, fined and taxed	E	единоличное владение (хозяйство)
6.	the assets of a company	F	компания с высокой долей заемного капитала
7.	venture capital institutions	G	нанимать и увольнять служащих
8.	general partnership	H	ограниченная ответственность (акционера)
9.	the gap between payment due to suppliers and payment owed by customers	I	организации, вкладывающие средства в создание новых компаний, часто с повышенным уровнем риска
10.	to raise the amount of money	J	имущество, активы, фонды, авуары, капитал, ресурсы компании
11.	ownership transfer	K	материально-производственные запасы; опись имущества, инвентаризация:
12.	limited liability	L	передача собственности
13.	to keep detailed records	M	получить доход от прироста капитала
14.	high geared company	N	вести подробные учетные записи
15.	overdraft facility	O	мобилизовать/добыть/занять сумму денег
16.	inventory	P	нести ответственность в пределах инвестированного капитала
17.	to make capital gains	Q	получить сертификат об инкорпорации
18.	to obtain a charter of incorporation	R	возможность списания со счета большей суммы, чем имеющийся остаток средств

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2.3 BACKGROUND INFORMATION

The Firm and Its Environment

The basic economic institution in different economic systems is the business. Businesses determine much of how the economy operates. Businesses produce goods and services, and they come in every shape and size. Although the vast majority of the world’s companies are small, in many countries the economy is dominated by large firms. Large businesses differ from small ones in a wide variety of ways. In many countries there are nationalised companies belonging to the state, as well as private companies. A private company might be a small firm with just one owner or a very large firm with thousands of shareholders “owning” the firm.

Starting a business requires more than natural resources, labour, and capital. An entrepreneur must organize these resources. Many entrepreneurs start their own business as sole proprietorships. A sole proprietorship is a one-owner business. The advantages of sole proprietorships (they are easy to organize, decisions can be made quickly, owners receive all profits, etc.) explain why so many people start businesses and try to run them alone. However, a sole proprietor sometimes encounters difficult problems in starting a business. One person has limited resources to start and operate a business. The owner has only personal savings and funds that can be borrowed. Because capital is lacking, most sole proprietors begin small and fail. Even those that succeed often stay small.

A sole proprietor also must deal with the problem of unlimited liability. According to the law, the owner and the business are one and the same. If the business fails, the owner must pay the debts. The personal property of the owner, such as a home or a car, can be taken to pay the debts of the business. No limit is placed on the amount the owner can lose. High profits can make an owner wealthy, but high losses can ruin an individual.

Still another problem occurs because of the limited life of the business. If the owner of a sole proprietorship dies, an entirely new enterprise must be started. Of all new proprietorships begun each year, 70 per cent fail within five years. To increase their chances of success entrepreneurs often choose partnership instead of sole proprietorship. A

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partnership is an association of two or more people in order to run a business. Partners generally contribute equal capital, have equal authority in management, and share profits or losses. In many countries, lawyers, doctors and accountants are not allowed to form companies, but only partnerships with unlimited liability for debts - which should make them act responsibly. A partnership has many of the characteristics of the sole proprietorship. Partnerships are easy to organize, decisions can be made quickly, profits are shared with only a few people, and the owners are responsible for success or failure of the business.

Like proprietorships, partnerships are not free of problems. Liability is still unlimited. Like sole proprietors, partners are responsible for the debts of the business. Liability then can actually be greater in a partnership than in a sole proprietorship, since each partner is responsible for all the business debts. Partnerships also have limited life. If one partner dies, the business must be dissolved.

Within a free market system, new businesses find easy access to the economy and opportunities to succeed. Nevertheless, the level of competition can be so high that success is very difficult. A partnership is not a legal entity separate from its owners; like sole traders, partners have unlimited liability: in the case of bankruptcy, a partner with a personal fortune can lose it all. Consequently, the majority of businesses are limited companies (US - corporations), in which investors are only liable for the amount of capital they have invested. If a limited company goes bankrupt, its assets do not cover the debts, they remain unpaid (i.e. creditors do not get their money back).

Often one person does not have enough money to start a business. Combining the resources of a number of people and forming a corporation is a way to raise the large amount of money needed. A corporation is a business that, although owned by one or more investors, legally has the rights and duties of an individual. Corporations have the right to buy, sell, and own property. Corporations may make legal contracts, hire and fire workers, set prices, and be sued, fined and taxed. A business must obtain a charter of incorporation from a state legislature to be legally recognized as a corporation.

A corporation issues shares of stock which are certificates representing ownership in the corporation. Investors buy and sell these shares of stock. Often hundreds and even thousands of small investors own stock in a single corporation. Because a corporation may have many owners, the stockholders elect a board of directors. Stockholders have one vote for each share of stock they own. The board of directors hires individuals to manage the day-to-day operation of the corporation. These individuals include the president and other chief administrators of the company. Most important, the board of directors manages the resources of the corporation in order to produce a profit. If the corporation makes a profit, shareholders may receive a dividend - a share of the profit paid on the stock. The board of directors decides how much of the profit should be divided among stockholders. The board may decide to reinvest some of the profit in the corporation for expansion, modernization, or research and development.

Corporations have some advantages over sole proprietorships and partnerships. First, a corporation has limited liability. Thus if the corporation goes bankrupt or is sued, the stockholders lose only the value of their stock. The stockholders, who are the corporation owners, cannot be held personally responsible for any money the corporation owes. Second, corporations have the ability to raise very large amounts of money. They use this money to change models, replace obsolete equipment, and build new factories. Corporations can raise money by selling bonds, as well as stocks. A bond is a certificate that promises to pay the holder of a bond, the investor, a certain amount of money on a certain date. Stocks and bonds differ in two important ways. Bonds, unlike stocks, do not represent ownership in the corporation. Also the rate of return on stocks changes; the rate of return on a bond is set when the bond is sold. Third, a corporation has an unlimited life. That is the corporation continues to function despite death, transfer, or changes in ownership, management, or labour. The work of sole proprietor or partners can end abruptly in such circumstances. This stability attracts small investors. The fourth advantage of corporation is the ease of

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ownership transfer. Selling a small business may be difficult; selling shares of stock is relatively easy. The investor also has an advantage. The ability to get out of one business, by selling stock, and into another quickly, by buying stock, is quite useful to small investors.

Corporations have disadvantages as well as advantages. First, complex forms must be filed with the state or federal government. A charter must then be issued, investors found, shares sold, and manufacturing or sales begun. The procedure for setting up a corporation is more difficult than that for setting up a sole proprietorship or a partnership. Also, to succeed a corporation must pay stockholders regular dividends and must keep detailed records to satisfy appropriate government agencies.

Second, a corporation’s profits are subject to double taxation. A corporation must pay taxes on its profits before the profits are distributed to stockholders as dividends. The stockholders include this dividend money as personal income on their income tax forms. Stockholders pay taxes on this income. The government, then, has taxed the corporation’s profits twice.

Third, in corporations with many owners or stockholders the individual share of profits in the form of dividends is comparatively small. In a single proprietorship or partnership, profits are divided among fewer individuals. Therefore, individual incomes are often greater.

Fourth, a corporation’s owners do not directly control the business. Most individual stockholders take little interest in management decisions. In contrast, sole proprietors or partners manage their own business. The main concern of the owner-managers is the success of the business. Managers of large corporations, though, may not have invested their own money in the business. Career decisions may be different from, and more important than, decisions to improve the business. For this reason many corporations arrange for management to own shares of stock.

In very large firms the shareholders have very little to do with the day-to-day running of the firm. This is left to the management. Large companies may be organized into several large departments, sometimes even divisions. The organisational structure of some companies is very hierarchical with a board of directors at the top and the various departmental heads reporting to them. Often the only time shareholders can influence the board is at the yearly shareholders’ meeting.

In Britain most smaller enterprises are private limited companies which cannot offer shares to the public; their owners can only raise capital from friends or from banks and other venture capital institutions. A successful, growing British business can apply to the Stock Exchange to become a public limited company; if accepted, it can publish a prospectus and offer its shares for sale on the open stock market. In America, there is no legal distinction between private and public limited corporations, but the equivalent of a public limited company is one registered by the Securities and Exchange Commission.

Founders of companies have to write a Memorandum of Association (in the US, a Certificate of Incorporation), which states the company’s name, purpose, registered office or premises and authorised share capital. Founders also write Articles of Association (US = Bylaws), which set out the rights and duties of directors and different classes of shareholders. Companies’ memoranda and articles of association, and annual financial statements are sent to the registrar of companies, where they may be inspected by the public.

2.4 COMPREHENSION

Skimming

2.4.1 Quickly go through the text above, and do the following.

1. 
   Determine the overall subject. Use the following expressions to present your answers:
   

   As I see it, …

   To cut a long story short, …

   In a nutshell, … .

2. 
   Quickly go through the text again and determine a few key points. Write them down.
   

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