Бизнес (Talking Business)

                            Ministry of Education

                 Chuvash State University after I.N.Ulyanov

                     Faculty of Business and Management

                                Course Paper:

                              Talking Business

                                          Student: N.I. Nikitin, FBM-

                                          Advisor:  M.V. Emelyanova

                              Cheboksary – 2003



   Chapter 1. Setting up a business………………….………………..……..….4

   Chapter 2. Company performance.….……..…………………….…………..6
   Chapter 3. The stock market...…….……..…..….….…..……….……….…..8


        The given course paper represents a  brief  material.  It  has  the
recommendations of successful management of business. The experience of  the
entering business and the achievements of positive results  are  generalized
in it. I have chosen the theme of my course  paper  as  I  think  that  each
person has an opportunity of opening his own business in  our  country  now,
but not everyone can do it. And that's  why  I  have  decided  to  help  the
beginning businessmen to earn money.

        The given course paper consists of three parts. In the  first  part
it is considered preparatory steps of the setting up of  business.  Work  of
the company is analyzed in the following chapter of the course paper.    And
I have tried to study the stock market in the third chapter.

                                 Chapter 1.

                             Setting up business

        If a person wishes to launch a new business, he has  to  make  some
preparatory steps. The first step is the selection of an  appropriate  legal
form. In various countries these forms  differ.  But  usually  they  are  as
follows: a limited liability company, a partnership and a sole proprietor.
        There  is  a  basic  difference  between  these  forms.  A  limited
liability  company  is  a  legal  entity  (legal  person).  In  case  of   a
bankruptcy, it has to reimburse (cover) its debts with all its  assets,  but
the creditors cannot seize the assets owned by the company’s shareholders.
        Sole proprietors or partners do not form a legal  entity  and  have
unlimited  liability.  If  their  business  goes  bankrupt,  they  have   to
reimburse the debts not only with the firm’s  assets  but  also  with  their
personal belongings: money, houses, cars, etc.
        For this reason, most businesses are set up  as  limited  liability
companies. The name of such a company ends  with  “Limited”  in  the  UK  or
Canada and with “Inc.”, “Corp.” or “LLC” in the USA.
        A limited liability company may be private  or  public.  A  private
company is usually founded by a small group of people who  know  each  other
and intend to do business  together.  A  private  company  cannot  sell  its
shares to the public and if it the business is not successful  the  founders
loose their own money only.
        A public company’s shares are traded on the stock market and may be
purchased by millions of people all over the world. These  shareholders  are
not aware of the company’s day-to-day  performance  and  must  rely  on  the
professionalism  of  the  company’s  managers  and  their  reports.  If  the
management is poor or in case of the managers’ fraud, the  shareholders  may
loose billions of dollars.
        Many countries have special regulatory bodies to  supervise  public
companies, such as the US Securities  Exchange  Commission.  Yet,  corporate
disasters  sometimes  happen.  One  of  the  most  recent  examples  is  the
bankruptcy of Enron Corporation, a giant supplier  of  energy  resources  in
the Western part of the United States.
        The second step in setting up a  business  is  the  preparation  of
various  documents,  such  as:  Memorandum  of  Association,   Articles   of
Association and Resolution of the founders on the appointment of  directors.
The Memorandum contains the conditions, on which the founders agree  to  set
up this business, and the Articles set out the principles of  the  company’s
formation and management: its name,  objectives,  share  capital,  rules  of
management, etc. The founders have to make the initial  investment  and  may
either hire the directors of  the  company  or  appoint  themselves  as  the
        Every new business is to be registered with  the  official  company
register. The UK has such registration offices in London and  in  Edinburgh,
while in the USA each of the 50 states has its own register.
                                 Chapter 2.

                             Company performance

        Any business is set up to make profit. But the  founders  sometimes
do not have enough experience or make  serious  mistakes,  which  result  in
losses. The financial results of the company’s operations can be  seen  from
its financial reports.
        There are at least three reasons for preparing such reports. First,
every government needs to collect  taxes  and  therefore  requires  detailed
information on the company’s performance,  revenues  and  expenses.  Second,
the  shareholders  need  to  know,  whether  the  company’s  management   is
professional enough, and  ask  for  confirmation  with  facts  and  figures.
Third, the company’s top executives  must  control  the  efficiency  of  the
company’s various departments and  the  input  of  each  department  in  the
company’s  operational  results.  The  reports  prepared  by  the  company’s
accounting department  are  often  verified  by  an  auditor,  which  is  an
independent public accountant. The auditor has to confirm that  the  reports
comply with  legal  requirements  and  they  reflect  the  company’s  actual
        There are a lot of reports submitted  annually,  semi-annually  and
quarterly. The most important one is the balance sheet, which describes  the
company’s assets and liabilities as on the  last  date  of  each  year.  The
assets are the values, which the company owns: money, buildings,  equipment,
raw materials, computer hardware and software, trade marks. The  liabilities
specify what the company owes, such  as:  share  capital,  credits  received
from banks and suppliers, other debts. If the amount  of  assets  is  higher
than that of the liabilities, the company has  profit.  If  the  liabilities
are higher than the assets, the company has losses. In the latter case  they
say that the company is “in the red”.
        Money transfers between the company and  its  partners  during  the
year are shown on the statement of cash  flows.  Cash  is  the  most  liquid
asset, which is as important for the company’s activities  as  blood  for  a
human body. If a company has huge fixed assets (land, buildings,  equipment)
but does not have enough money, it is a sign of financial problems.
        There are many other reports, letters, notes and messages, which  a
company has to submit. Some of them are  very  colourful,  with  photographs
and illustrations and look like advertising  material.  But  their  contents
are usually a summary of the above two documents and additional comments  to
        If we deduct the company’s expenses from its revenues,  the  result
is gross profit before    taxes. If we further deduct taxes from  the  gross
profit, the result is   net profit,  which  may  be  distributed  among  the
shareholders as their dividends  or  may  be  reinvested.  The  shareholders
adopt a resolution on this  matter  at  their  annual  meeting.  Often  they
decide to    use half   of the net profit for dividends and to reinvest  the
other half. The net profit may also be carried forward  to  the  next  year.
The amounts brought forward from the previous year are  known  as  “retained
earnings” of the company.
        Companies are usually reluctant (do not  wish)  to  pay  taxes  and
there are legal ways to avoid some of them. The company’s  ability  to  save
on taxation depends on the professionalism of its accountants.  The  easiest
way  to  avoid  taxes  is  to  increase  expenses  through  purchasing   new
machinery, investing in new technologies, making money transfers to  charity
        While tax avoidance  is  allowed,  tax  evasion  is  a  crime.  The
company’s executive body (the board of directors)  is  responsible  for  the
correctness of the information submitted to  the  government.  The  personal
liability is on the chief executive officer (the board chairperson) and  the
chief  financial  officer  who  sign  the  reports.  If  the     information
contained in the documents is not correct and if the company tries to  evade
taxes, these persons may be  fined  or  even  jailed.  Otherwise,  they  may
escape to another country, which sometimes happens.

                                 Chapter 3.

                              The stock market

        A century ago, the size of enterprises was rather  small,  each  of
them usually employed several dozen workers,  and  most  business  companies
were  family-owned.  Further  industrial  growth  required  more   intensive
financing and family capitals became insufficient. This gave birth to  share
capital, which can combine financial resources of many people  into  a  pool
for starting a big project.
        The most  visible  representatives  of  share  capital  are  public
limited companies, such as British Petroleum, Royal Dutch Shell  or  General
Motors. They raise money on the stock market by issuing  securities,  mostly
shares and bonds.
        Ordinary shares (common stock in USA) form the largest part of  the
whole securities market. A shareholder owning ordinary shares  can  vote  at
the annual shareholders’  meeting,  which  reviews  the  company’s  reports,
takes  decisions  on  the  company’s  plans  and  the  distribution  of  the
company’s profit. The meeting may decide to distribute the dividends to  the
shareholders or to reinvest the profit. If the company has no profit or  has
losses, the owner of ordinary shares will receive no dividends.
        Each ordinary share has its face value and its  market  price.  The
face value is indicated on the share certificate but one cannot sell or  buy
the share at the face value. The market price is established  at  the  stock
exchange, where the shares are quoted and traded. The market  price  may  be
several times higher or lower than the face value because it depends on  the
general market situation and on the performance of the company.
        When the country’s economy grows, the stock market usually  has  an
upward trend, the market prices of shares  go  up  and  the  stock  exchange
traders say that the market is “bullish”.  If  the  market  has  a  downward
trend,  the  market  prices  of  shares  go  down  and  the  market  becomes
        Many companies issue preference shares (preferred  stock  in  USA).
These shares give the shareholder a guaranteed, stable  income  fixed  as  a
percentage of their face value. But  preference  shares  do  not  let  their
owner to vote at the shareholders’ meetings.
        Some companies issue bonds. These securities  provide  their  owner
with stable income, the same as preference shares do.  But  unlike  ordinary
or preference shares, bonds  are  redeemable.  It  means  that  the  company
issuing bonds has an obligation to redeem them or buy them back at the  face
value after a certain period of time, usually after several years.
        There was a stock market boom  during  the  latest  decade  of  the
twentieth century. Many people  became  active  in  shopping  for  financial
products and invested much of their  wealth  in  securities.  They  expected
that the markets would grow rapidly in the coming years and  hoped  to  earn
money through buying securities at lower prices and selling them  at  higher
        But these expectations were ruined by a sudden economic crisis. Now
the Western economies have been in recession for about  two  years  and  the
market price of most securities is much lower than their face value.  It  is
a very sad situation for the shareholders, because they cannot return  their
shares to the issuing companies and get their  money  back.  They  can  only
sell these shares at their market price, if somebody will buy them.


       In the conclusion I want to tell, that the knowledge  of  the  basic
economic principles creates conditions of safe  existence  for  the  person.
The public phenomena, which are studied with the economic theory,  influence
various layers of the population. The size of the received income  plays  an
important role in the position of the person in the society.
       Certainly, I cannot  say  that  if  you  study  the  basic  economic
principles, you will understand all essence of economic events.
       I hope that my work will  help  the  beginning  businessmen  in  the

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        "Finance", 1997.

      Osipov J.M. Bases of enterprise activity. – Moscow, 1992.

     2. Bulatov A.S. The economic theory (2 edition). – Moscow, 1997
     3. ссылка на сайт удаленаcontact://www.ref.ru