Legal Forms of Companies different types of companies in England, the U.S., and Austria, starting a company, advantages and disadvantages of company forms, how companies develop and change over time, public corporations and the stock market, describing company development, inside versus outside sources of information 1. Company Forms (British terms) A) Use the words in the box to fill in the gaps in the passage. backers bankrupt bankruptcy capital collateral controlling interest creditors debts dividend equity capital gearing holding investment liable liquidation loan majority shareholder partnership profits public shareholder shares silent partner sole proprietor Stock Market unlimited liability The money needed to start a business is called c__________ . If a person doesn't have enough to start his business, he or she may take out a l__________ from the bank. Before the bank will give this person the money, he or she must put up some sort of security, such as a house. This is also called c__________ . If the business is owned by one person (a s__________ p__________ ) and it runs into trouble, the owner is l__________ to pay all the d__________ . He or she could even have to sell their own possessions to pay back their c__________ . This is called "unlimited liability." On the other hand, if there is only one owner, he or she can keep all the p__________ from the company. Sometimes two or more people own a business, in which case it is called a p__________ . All of the investors, or b__________ are also owners and partners. Usually all of the partners have u__________ l__________ , and, like sole proprietors, they can go b__________ if the business fails. In some cases there may be s__________ p__________ who simply invest money, but do not have a say in the running of the company. These investors usually have limited liability, meaning they only lose their original i__________ if the company goes into b__________ . In a limited company, all of the investors have limited liability. Investment in a limited company is in the form of s__________ and so an investor (or owner) is called a s__________ . If a person owns shares of a company, he or she is said to have a stake or a h__________ in the company, and if someone owns more than 50% of the shares, he or she is a m__________ s__________ and has c__________ i__________ in the company. In BE I: Company Project - 2009/10 Company Forms Page 1 other words, he or she is the boss. Some or all of the profits of a limited company are paid out to the shareholders in the form of a d__________ . There are both private and p__________ limited companies. In private limited companies (which have the abbreviation "ltd." after their names,) a shareholder can only sell his or her shares when the rest of the shareholders agree. In public limited companies (abbreviation: "plc"), shares are bought and sold freely on the S__________ M__________ . Besides the money they get from selling shares (called share capital or e__________ c__________ ), limited companies can also borrow capital from banks or other institutions (called loan capital). The ratio of a company's loan capital to equity capital is known as its g__________ . A highly geared company has a large proportion of loan capital. When a limited company fails, it goes into l__________ , meaning all its assets are sold off to pay creditors. B) Fill in the chart using the information from above. Type Sole Proprietorship plc Abbreviation (2 – 50) Number of Owners partners Who owns it limited Liability of owners Owners' earnings profit after tax If the business fails . . . If an owner sells . . . C) Now answer the questions in complete sentences: a) b) c) d) e) How can a sole proprietor protect his/her private assets in the case of bankruptcy? How realistic is it that a public limited company has a majority shareholder? What advantage can equity capital have over loan capital? What is the interest rate for loans right now? What is the difference between “bankruptcy” and “liquidation”? Are these the only two options for a failing company? f) When a company goes into liquidation, what all can be sold to pay off creditors? BE I: Company Project - 2009/10 Company Forms Page 2 2. Setting Up a Limited Company The diagram below shows you how ABC Ltd. was set up. Roger $20,000 Margaret $55,000 ABC Ltd. $100,000 (20,000 x $5) Mike $15,000 Frank $10,000 (Profit after first year: $20,000) Now make complete sentences about ABC Ltd using the words below. Include names, numbers and specific information in your sentences. In order to make sure you use an appropriate level of language, there is an added rule: you may not use any of the following verbs in your sentences – to be, to exist, to have, to get, to make, to do, to give, to put, or to take. a) investors, equity capital b) majority shareholder, stake, controlling interest c) shares, nominal value (or "face value", or "par value") d) profit, dividend per share e) return, investment BE I: Company Project - 2009/10 Company Forms Page 3 3. Advantages and Disadvantages Scrambled up on the next page are 24 positive and negative aspects of the four different types of companies. First decide whether each one is an advantage or a disadvantage, and then which type of company it applies to. (Some points can be applied to more than one type of company, but there is a best answer. When you are finished you should have three advantages and three disadvantages for each company type.) Advantages Disadvantages Sole Proprietorship Partnership Private Limited Company Public Limited Company 1. Shareholders have limited liability. 2. Finances are confidential 5. They have continuity - the board of 6. Freedom to do as directors continues to run the he or she likes in business whoever dies or retires. running the business. BE I: Company Project - 2009/10 3. There is no continuity of business if a partner dies or goes bankrupt 4. Shares can not normally be sold to the public - this limits the capital. 7. Management can become 8. Any losses are shared impersonal, inflexible or among the partners. inefficient and more staff can be expensive. Company Forms Page 4 9. Limited capital 10. More capital restricts new projects or available expansion plans. 13. Capital is still limited for large scale business. 11.Management and ownership can 12.Possible disagreements be separate. Shareholders can between partners - personal or exercise some control in the annual professional. general meetings. 14. The company has a legal identity and can be treated like a person under the law. 15. Management can be criticized and hindered by shareholders who do not fully understand a situation. 17. Unlimited liability. If the business 18. A lot of information that the fails, the owner is responsible for all company would like to keep the debts and may lose his or her confidential must be made public own possessions. 21. Easy to set up. No complex legal problems. 16. With so much capital. large scale projects and investments can be undertaken. 19. Owner keeps all of the profits. 20. Carefully audited accounts must be kept for annual inspection. 22. Owner tied to the business. 23. They can provide more After business hours there can capital than partnerships. still be a lot of work to be done. 24. With legal, accountancy and government fees, they are very expensive to set up. BE I: Company Project - 2009/10 Company Forms Page 5 4. American and Austrian Forms of Companies A) Unlike the British or the Austrians, Americans do not emphasize the distinction between private and public companies. All limited companies are called "corporations" and get the abbreviation "inc.", which is short for "incorporated". Listen to the explanation and write the American equivalent of the British companies listed below. British American Austrian sole proprietorship partnership limited partnership private limited company public limited company B) Do you know any other forms of business in Austria? In other countries? List them below and be prepared to explain what they are to the class. Fill the abbreviations into the chart above in the same row as their nearest equivalent. 5. Problem Solving In a small group read the situations below and then discuss what type of business should be set up in each case. There is not one right or wrong answer. Be prepared to justify your decision to the class. a) You and your spouse (husband or wife) want to open up a grocery shop in a small village. There is already one store, owned by an old lady. Your bank will lend you all the money you need. b) Two couples, one with young children want to buy a small hotel, which all the adults will work in. c) You want to sell fruit and vegetables at a stall in the market. You need $1000 starting capital which your parents will lend to you. d) Two small partnerships would like to merge their companies and expand. They will need an influx of capital to start off with. BE I: Company Project - 2009/10 Company Forms Page 6 6. Company Development (and History) Readings: "Harley-Davidson History Overview" http://www.h-dmedia.com/100_mediasite/history/at_a_glance.asp "Harley-Davidson Turns 100" http://www.cbsnews.com/stories/2003/08/28/national/printable570603.shtml As companies grow and expand, their legal form also usually changes to meet the needs of the new financial and market situations. The two articles below give accounts of how the company developed over the last 100 years. Read them to do the tasks below a) Using both articles, summarize the development of the company in terms of legal form since its foundation in 1903. (Although the form is often not explicitly mentioned, try to identify the legal forms based on content of this unit.) b) In what years was or has Harley-Davidson been listed on the Stock Exchange? c) The first article above is from an official HD website, the second comes from an outside source, CBS News Online, and therefore there is a big difference in both wording and content. Find passages with more critical content in the second article that is left out of the first. d) What impression of the company does each of these articles create? Readings from CBS News Online Harley-Davidson Turns 100 MILWAUKEE, Aug. 25, 2003 Harley-Davidson Inc., the iconic motorcycle maker whose bikes call to mind James Dean, "The Wild One" and leather-clad easy riders cruising down the open road, has reached its centennial, surviving the Depression and near-bankruptcy to become an American success story. Along the way the company has collected thousands of fans who love the freedom-of-theroad lifestyle and the bike's classic chrome-and-metal look, dependability and a distinctive engine rumble known to Harley riders as "potato, potato, potato." Harley-Davidson is also celebrating a 46 percent share of the North American heavyweight motorcycle market, an impressive showing for the company that William Harley and Arthur Davidson started in a wooden shed. BE I: Company Project - 2009/10 Company Forms Page 7 "When they're buying a Harley, they're buying an image and a lifestyle first, and a motorcycle second," Tim Conder, an industry analyst with A.G. Edwards & Sons Inc. brokerage firm, said of Harley buyers. But analysts say Harley has to do more to ensure another 100 years of success. Aging baby boomers form Harley-Davidson's customer base; the median age of Harley buyers is 46, compared with an industry average of 38. Nine percent are women, and only 16.5 percent of Harley's revenue comes from outside the United States. "Harley will rightly argue they have plenty of boomers left. But in the long term, the most critical issue of Harley is whether buyers will start looking at Harley as the old guy's bike," said Don Brown, an independent motorcycle analyst in Irvine, Calif. Market share figures point out the company's potential weaknesses. Although Harley dominates the North American heavyweight market, it comes in second to Honda in the overall U.S. market, according to the Motorcycle Industry Council. Younger riders and those overseas prefer the faster Japanese sports bikes that cost less than the $15,000-plus price tags most Harleys carry. But for Harley fans, owning one of the bikes - known affectionately as "hogs" - has been a transcendent experience. "Getting your first Harley is like having your first love, sometimes more," said George Miller, a 46-year-old Harley rider who works at a Houston refinery. The company and its hefty motorcycles have left indelible marks on American culture - giving rise to the rebellious motorcycle culture immortalized in the movies "The Wild One" in 1953 and "Easy Rider" in 1969. That has helped feed a side business of merchandise, including leather jackets, that bear the famed black, white and orange Harley-Davidson logo. The company worked to clean up its rough-and-tumble image in the 1980s, but chief executive officer Jeffrey Bleustein said it still has drawing power. "It certainly doesn't hurt if there's a little bit of naughty in the image," he said. "We wouldn't want to be too sterile." Harley's first century wasn't always easy. The company overcame the advent of the automobile, the Depression and two World Wars to emerge in 1953 as America's only major motorcycle maker. But then came a flood of inexpensive imports mid-century and a merger with American Machine and Foundry Co. in 1969. Harley's quality soured, and AMF put the company up for sale in 1980. Bleustein and 12 executives bought Harley in 1981, and began fixing its finances and quality. At the company's urging, the government imposed five-year tariffs in 1983 on imported heavyweight motorcycles. That helped, but Harley squeaked by bankruptcy in 1985 after it finessed new financing. "You consider in 1981, we were beg, borrowing and stealing every penny we could get to invest in this company, not knowing where our future might take us," said Willie G. Davidson, chief styling officer and grandson of a founder. "That's an amazing success story." To attract new customers, Harley two years ago introduced the sleek V-Rod, its first bike with a liquid-cooled engine, said Bob Simonson, an industry analyst with William Blair and Co. BE I: Company Project - 2009/10 Company Forms Page 8 Harley is now launching a second bike into the V-Rod's family and is redesigning its Sportster family of entry-level, lower-priced bikes in an appeal to younger riders and women. The company also has a subsidiary, Buell Motorcycle, that makes sports bikes, but it only accounted for 4 percent of Harley's bike shipments last year, according to company figures. "We are going to continue to give attention to what is our classical product line because it's classical," Bleustein said. "But at the same time we'll see a lot of other activities that are geared toward reaching out to other new customers." © MMIII The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. from the Harley-Davidson Website Harley-Davidson Historical Overview 1903 William S. Harley and the Davidson brothers - Walter and Arthur - handcraft their first three motorcycles in Milwaukee, Wis. William A. Davidson later joins the enterprise. 1909 Introduction of the first Harley-Davidson® V-Twin engine. 1917-1918 Production of 17,000 military motorcycles to serve the U.S. Allied forces in World War I. 1930s Harley-Davidson and Indian are the sole U.S. motorcycle manufacturers to survive the Great Depression. 1941- 1945 Nearly all of Harley-Davidson's manufacturing output supports the World War II effort of the U.S. and its Allies, with more than 90,000 motorcycles used by the Allied forces. 1947 To meet the exploding, postwar demand for motorcycles, Harley-Davidson acquires a second manufacturing plant - the Capitol Drive facility in Wauwatosa, Wis. 1965 Privately-held family ownership ends with the first public stock offering. 1969 Merger with American Machine and Foundry (AMF). 14,000 motorcycles produced annually. 1973 Motorcycle final assembly moves to York, Pa., to meet growing demand. 1981 Thirteen members of Harley-Davidson's senior management purchase the company from AMF in a leveraged buyout and implement new quality management and manufacturing methods. BE I: Company Project - 2009/10 Company Forms Page 9 1982 Harley-Davidson successfully petitions the U.S. federal government for tariffs on imported Japanese motorcycles flooding the U.S. market. 1983 Harley Owners Group (H.O.G.) is established. 1986 Return to public ownership, Harley-Davidson stock begins trading at $11 per share at its Initial Public Offering. The Motor Company regains its top position in the U.S. super heavyweight market. 1987 At the request of Harley-Davidson, tariffs on Japanese motorcycles end one year ahead of schedule. Harley-Davidson is listed on the New York Stock Exchange under the symbol HDI. 1993 Harley-Davidson Financial Services is founded. 1995 Harley-Davidson formalizes its unique Partnership relationship with its unionized workforce. 1998 Harley-Davidson acquires Buell Motorcycle Company, opens a new powertrain plant outside of Milwaukee in Menomonee Falls, Wis. and builds a new final assembly plant in Kansas City, Mo. More than one hundred thousand motorcycle enthusiasts come to Milwaukee to celebrate the Company's 95th birthday. 1999 The Twin Cam 88™ powertrain is introduced on the Dyna and Touring models. Stock splits for the fifth time since 1986. 2002 Harley-Davidson kicks-off the 100th Anniversary Celebration with the Open Road Tour, the world's largest rolling birthday party. Open Road Tour stops in 2002 include Atlanta, Baltimore, Los Angeles, Toronto and Dallas/Ft. Worth. 2003 The Open Road Tour resumes in 2003 with stops in Sydney, Tokyo, Barcelona and Hamburg. The events resume in the United States with the Ride Home: four journeys across the United States to Harley-Davidson's home in Milwaukee. Upon arrival in Milwaukee, the Celebration begins with three days of celebration and special events in and around Milwaukee. Everything culminates on August 31, 2003 with the Party, the official birthday celebration in Milwaukee that will launch Harley-Davidson into the next 100 years. 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