Text 16. Private Enterprise (Частное предприятие)

In capitalist economies, a predominant proportion of productive capacity has belonged to companies, in the sense of for-profit organizations. This include many forms of organizations that existed in earlier economic systems, such as sole proprietorships and partnerships. Non-profit organizations existing in capitalism include cooperatives, credit unions and communes.

More Text 16. Private Enterprise (Частное предприятие) unique to capitalism is the form of organization called corporation, which can be both for-profit and non-profit. This entity can act as a virtual person in many matters before the law. This gives some unique advantages to the owners, such as limited liability of the owners and Text 16. Private Enterprise (Частное предприятие) perpetual lifetime beyond that of current owners.

A special form of corporation is a corporation owned by shareholders who can sell their shares in a market. One can view shares as converting company ownership into a commodity - the ownership rights are divided into units (the shares) for Text 16. Private Enterprise (Частное предприятие) ease of trading in them. Such share trading first took place widely in Europe during the 17th century and continued to develop and spread thereafter. When company ownership is spread among many shareholders, the shareholders generally have votes in the exercise of authority over the company in proportion to the Text 16. Private Enterprise (Частное предприятие) size of their share of ownership.

To a large degree, authority over productive capacity in capitalism has resided with the owners of companies. Within legal limits and the financial means available to them, the owners of each company can decide how it will operate. In larger companies, authority is usually delegated Text 16. Private Enterprise (Частное предприятие) in a hierarchical or bureaucratic system of management.

Importantly, the owners receive some of the profits or proceeds generated by the company, sometimes in the form of dividends, sometimes from selling their ownership at higher price than their initial cost. They may also re-invest the profit in the Text 16. Private Enterprise (Частное предприятие) company which may increase future profits and value of the company. They may also liquidate the company, selling all of the equipment, land, and other assets, and split the proceeds between them.

The price at which ownership of productive capacity sells is generally the maximum of either the Text 16. Private Enterprise (Частное предприятие) net present value of the expected future stream of profits or the value of the assets, net of any obligations. There is therefore a financial incentive for owners to exercise their authority in ways that increase the productive capacity of what they own. Various owners are motivated to various degrees Text 16. Private Enterprise (Частное предприятие) by this incentive – some give away a proportion of what they own, others seem very driven to increase their holdings. Nevertheless the incentive is always there, and it is credited by many as being a key aspect behind the remarkably consistent growth exhibited by capitalist economies. Meanwhile, some Text 16. Private Enterprise (Частное предприятие) critics of capitalism claim that the incentive for the owners is exaggerated and that it results in the owners receiving money that rightfully belongs to the workers, while others point to the fact that the incentive only motivates owners to make a profit - something which may not necessarily result in Text 16. Private Enterprise (Частное предприятие) a positive impact on society. Others note that in order to get a profit in a non-violent way, one must satisfy some need among other persons that they are willing to pay for. Also, most people in practice prefer to work for and buy products from for-profit Text 16. Private Enterprise (Частное предприятие) organizations rather than to buy from or work for non-profit and communal production organizations which are legal in capitalist economies and which anyone can start or join.

When starting a business, the initial owners or investors typically provide some money (the capital) which is used by Text 16. Private Enterprise (Частное предприятие) the business to buy or lease some means of production. For example, the enterprise may buy or lease a piece of land and a building; it may buy machinery and hire workers (labor-power), or the capitalist may provide the labor himself. The commodities produced by the workers become the Text 16. Private Enterprise (Частное предприятие) property of the capitalist ("capitalist" in this context refers to a person who has capital, rather than a person who favors capitalism), and are sold by the workers on behalf of the capitalist or by the capitalist himself. The money from sales also becomes the property of the capitalist. The Text 16. Private Enterprise (Частное предприятие) capitalist pays the workers a portion of this profit for their labor, pays other overhead costs, and keeps the rest. This profit may be used in a variety of ways, it may be consumed, or it may be used in pursuit of more profit such as by Text 16. Private Enterprise (Частное предприятие) investing it in the development of new products or technological innovations, or expanding the business into new geographic territories. If more money is needed than the initial owners are willing or able to provide, the business may need to borrow a limited amount of extra money with a promise to pay Text 16. Private Enterprise (Частное предприятие) it back with interest. In effect, it may rent more capital.

READ AND ANSWER THE FOLLOWING QUESTIONS
1. What is the predominant type of organizations in capitalist economies?
2. What advantages does corporation have?
3. How can shareholders exercise their authority over a company?
4. What rights do company owners have Text 16. Private Enterprise (Частное предприятие)?
5. Describe the process of starting a business.


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