MAJOR KINDS OF BUSINESS ORGANIZATIONS

One of the major economic institutions is the business organization,                      a profit-seeking enterprise¹ that serves as the main link between scarce resources and consumer satisfaction. These businesses compete with one another for the chance to satisfy people’s wants.

There are three major kinds of business organizations: the sole proprietorship², the partnership³ and the corporation⁴.

The most common form of business organization is the sole proprietorship — a business owned and run by one person. The main advantage of a sole proprietorship is that it is the easiest form of business to start and run. There is almost nored tape⁵ involved. Most proprietorships are able to open for business as soon as they set up operations. In the event that the owner wants to dissolve the business⁶, a sole proprietorship is as easily dissolved as it is formed.

Sole proprietors own all the profits of their enterprises and are free to make whatever changes they please. They have minimal legal restrictions and do not have to pay the special taxes placed on corporations. They also have the opportunity to achieve success⁷ and recognition through their individual efforts. Sole proprietorships are generally found in small-scale retail and service businesses such as beauty salons, repair shops, or service stations.

The major disadvantage of a sole proprietorship is the unlimited liability⁸ that each proprietor faces. Since the business and the owner are legally the same, the sole proprietoris liable for⁹ all financial losses or debts that the business may incur. If a business fails, the owner must personally assume the debts¹⁰. This could mean the loss of personal property such as automobiles, homes and savings¹¹.

A second disadvantage of the sole proprietorship is that it has limited financial resources. The money that a proprietor can raise is limited by the amount of savings and ability to borrow. Another serious problem faced by the sole proprietorship is the lack of continuity of the business. When the owner dies, the business also legally terminates.

COMMENTS

11.  1.a profit-seeking enterprise — прибуткове пiдприємство

12.  2.sole proprietorship/sole trader/one-man firm — одноосiбна власнiсть

13.  3.partnership — партнерство

14.  4.corporation — корпорація

15.  5. red tape — бюрократизм

16.  6.to dissolve the business —припинити діяльність підприємства

17.  7. to achieve success — досягти успіху

18.  8.unlimited liability — необмежена юридична відповідальність

19.  9. to be liable for — бути відповідальним за

20. 10. to assume the debts — приймати/брати на себе борги

21. 11.savings — заощадження

Demand and supply

Economists define demand as a consumer’s desire or want, together with his willingness to pay for what he wants. When we exercise our choice, we do so according to our personal scale of preferences. In this scale of preferences essential commodities come first (food, clothing, shelter, medical expenses etc.), then the kind of luxuries which help us to be comfortable (telephone, special furniture, insurance etc.), and finally those non-essentials which give us personal pleasure (holidays, parties, visits to theatres or concerts, chocolates etc.). Law of Demand says that the demand for an economic product varies inversely with its price. if prices are high the quantities demanded will be low. If prices are low the quantities demanded will be high. Elasticity of demand is a measure of the change in the quantity of a good, in response to demand. The change in demand results from a change in price. Demand is inelastic when a good is regarded as a basic necessity4, but particularly elastic for non-essential commodities.

In economic theory, the term «supply» denotes the amount of a commodity or service offered for sale at a given price. Everyone who offers an economic product for sale is a supplier. The law of supply states that the quantity of an economic product offered for sale varies directly with its price. If prices are high suppliers will offer greater quantities for sale. if prices fall either locally or throughout the world, producers will reduce production.Overproduction of any commodity can also create difficulties, because it can lead to a glut on the market, which may cause prices to fall sharply. Supply is determined also by factors other than price, the most important being the cost of production and the period of time allowed to supply to adjust to a change in prices. The supply curve shows us how many units of a particular commodity or service would be offered for sale at various prices.

Just as economists study the amount of goods and services brought to market by a single producer, they also study the total amount of goods and services produced by the economy as a whole. Thus, they examine aggregate supply¹ — the total amount of goods and services produced by the economy in a given period, usually one year.

A number of factors affect an economy’s aggregate supply. Two of these are the quantity of resources used in production and the quality of those resources. For example, an economy must have an adequate supply of natural resources and capital goods to be productive².

Market and market structures

In short, markets can be classified according to certain structural characteristics that are shared by most firms in the market. Economists have names for these different market structures: pure competition¹, monopolistic competition², oligopoly, and monopoly.

An important category of economic markets is pure competition. This is a market situation in which there are many independent and well-informed buyers and sellers of exactly the same economic products. Each buyer and seller acts independently. They depend on forces in the market to determine price. If they are not willing to accept this price, they do not have to do business.

To monopolize means to keep something for oneself³. A person who monopolized a conversation, for example, generally is trying to stand out from⁴ everyone else and thus attract attention⁵.

The term market, as used by economists, is an extension of the ancient idea of a market as a place where people gather to buy and sell goods. Today, however, markets such as the world sugar market, the gold market¹ and the cotton market do not need to have any fixed geographical location. Such a market is simply a set of conditions permitting buyers and sellers to work together. 

MARKET PRICE

Prices play an important role in all economic markets. Price is Money value of a good or service. In a market economy prices act as signals. A high price, for example, is a signal for producers to produce more and for buyers to buy less. price system is Economic system in which resources are allocated as a result of the forces of supply and demand.Prices, especially in a free market system, are also neutral. That is, they favour neither the producer nor consumer. Instead, they come about as a result of competition between buyers and sellers. The price system in a market economy is surprisingly flexible.Competition between buyers and sellersleads to market equilibrium — a situation where prices are relatively stable and there is neither a surplus nor a shortage in the market. In most economic systems, the prices of the majority of goods and services do not change over short periods of time. Prices perform two important economic functions: they ration scarce resources, and they motivate production. As a general rule, the more scarce something is, the higher its price will be, and the fewer people will want to buy it. Economists describe that as the rationing effect of prices. Prices may be either free to respond to changes in supply and demand or controlled by the government or some other (usually large) organisation.

Labour and capital

There are four major categories of labour that are based on the general level of skills needed to do any kind of job. These categories are unskilled, semiskilled, skilled and professional or managerial.

Unskilled labour. Workers who do not have the training to operate machines and equipment fall into³ the category of unskilled labour. Most of these people work chiefly with their hands at such jobs as digging ditches, picking fruit, etc.

Semiskilled labour. Workers who have mechanical abilities⁴ fall into the category of semiskilled labour. They may operate electric floor polishers, or any other equipment that calls for⁵ a certain amount of skill. 

Skilled labour. Workers who are able to operate complex equipment and who can do their tasks with little supervisions fall into the category of skilled labour. Examples are carpenters, typists, toolmakers.

Professional labour. Workers with high level skills such as doctors, lawyers and executives of large companies fall into the category of professional labour.

Most occupations have wage rate — a standard amount of pay given for work performed.

How these rates are determined can be explained in two different ways. The first deals with supply and demand, the second recognizes the influence of unions on the bargaining process.

The third factor of production is capital — the tools, equipment and factories used in production of goods and services. It is a produced factor of production, a durable input which is itself an output¹ of the economy. For example, we build a textile factory and use it to produce shirts, or assemble
a computer and then employ it in educating students.

   As noted earlier, such items are also called capital goods². This is to distinguish them fromfinancial capital³, the money used to buy the tools and equipment used in production.

   Capital is unique in that, it is the result of production. A bulldozer may be an example of capital goods used in construction. At the same time⁴, it was manufactured in a factory which makes it the result of earlier production.

   When the three inputs⁵ — land, labour and capital — are present, production or the process of creating goods and services, can take place. Even the production of the service called education requires the presence of land, labour and capital.

TAXES AND TAXATION

Taxes are the compulsory financial contribution by a person or body of persons towards the expenditure of a public authority. In modern economies taxes are the most important source of government revenues.

Taxes have 3 functions:

1)fiscal or budgetary, to cover government expenditure, to provide the public authorities with the revenue required for meeting the cost of defence, social services, interest payments on national debt, municipal services, etc;

2)economic, to give effect to economic policy, to promote stable economic growth, to influence the rate of economic growth of the nation;

3)social, to increase the economic welfare of the community, to lessen inequalities in the distribution of income and wealth.

Taxes may be direct or indirect. For example, taxes on income and on capital are known as direct; taxes on commodities or services are known as indirect.

Taxes may be proportional, progressive and regressive.

 A proportional tax is one that imposes the same percentage rate of taxation¹ on everyone,no matter what their income.

A progressive tax is one that imposes a higher percentage rate of taxation of people with high incomes than on those with low incomes.

A regressive tax is one that imposes a higher percentage rate of taxation on low incomes than on high incomes.

TAXATION

In order to have an effective tax system, government must have criteria or standards. One such criterion is that a tax yields enough revenue.

A second criterion is clarity. Tax laws should be written so that both    the taxpayer and tax-collector can understand them. This is not an easy task but people seem to be more willing to pay taxes¹, when they understand them. A third criterion is ease of administration. A tax should be easy to collect. It should not require a large enforcement staff, and it should be designed so that citizens find it hard to avoid. This criterion also includes convenience and efficiency. That is the tax should be administered at the lowest possible cost. A final criterion is fairness. Taxes should be imposed justly. However, this is hard to do because people do not always agree about what is or is not fair when it comes to taxes².

In general taxes are based chiefly on two principles: the Benefit Principle³ and the Ability-to-Pay Principle⁴.

The Benefit Principle of taxation is based on two ideas. First, those who benefit from government services should be the ones to pay for them. Second, people should pay taxes in proportion to the amount of services or benefits they receive.

The Ability-to-Pay Principle of taxation says that people should be taxed according to their ability to pay, no matter what benefits or services they receive. This principle is based on three things. First it is not possible to measure benefits, derived from government spending. Second, people with higher incomes suffer less discomfort than people with lower incomes even if they pay higher taxes. Finally, the only means most people have of paying taxes is the income they earn. Since the benefits of government services to individuals are hard to measure, the other basis for distributing taxes is income.

1. ... people seem to be more willing to pay taxes — ... здається, що люди       з більшою охотою платитимуть податки

2. ... when it comes to taxes — ... коли йдеться про податки

3. Benefit Principle — пільговий принцип

4. Ability-to-Pay Principle — принцип платоспроможності

TAXATION IN UKRAINE

Under Ukrainian law, all Ukrainian legal entities, whether they have foreign investment or not, are subject to the profit tax law. Foreign entities that have a taxable permanent establishment in Ukraine are also taxed under this law.

Ukrainian taxes provide revenue for two tiers of the budget: national and local. The major taxes paid to the budget are: tax on income, tax on wages, profit tax, excise duty, state duty, value added tax (VAT) and others.

In Ukrainian government tries to create the climate in which business can thrive, to keep the tax burden as low as possible. It also attempts to eliminate tax allowances, which deprive the budget of tax revenues, and to improve tax collection.

Tax returns in Ukrainian legal entities are audited by the tax authorities at the time they are submitted.

If the company or a person assessed believes the assessment is incorrect in any way, an appeal may be lodged against it. The appropriate financial organ is required by law to reply to such an appeal within five days.

When a company resident in one country receives income or gains from source in another, or when shareholders and company are domiciled in different countries it is possible that incomes arising will be taxable in each country, i.e. taxed twice.

A number of countries have problems because of significant taxpayer non-compliance.

Along with cases of illegal evasion of tax obligations there are entirely legal ways of avoidance by which a person may so arrange his affairs as to minimize, or even eliminate, tax liability on his property and income.