2018-02-14
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Small business are managed by their owners and have a relatively small capital. Small manufacturing firms employ fewer than 200 people. Large firms a typically incorporated (limited companies), where ownership and management are separated. Large companies that exploit economies of scale enjoy a cost advantage over small firms in the same industry. In particular, large firms have access to the following technical and financial economies. Technical economies occur in the production of a good.
As the firm expands, there is greater scope for specialization and the division of labour. Large factories can employ specialist skilled workers to do the same job all day no time lost in changing tools or doing unfamiliar tasks. The indivisibility of certain types of share of the market means that many production processes are impossible on a small scale. Large firms can benefit by linking production processes that would otherwise be carried out in separate factories.
Financial economies allow large firms to raise capital on advantageous terms. Large firms are considered to be reliable and are therefore charged a low rate of interest and have access to capital markets, such as the stock exchange. Selling shares is a relatively inexpencsive method of raising large amounts of capital.
Despite the cost advantage to large firms of producing in bulk, small business find a niche by providing specialized products for small markets. An irregular or limited demand for a product prevents mass production. Small firms have the required flexibility and low overheads. Often small firms survive by accepting subcontracting work from large companies. Where the market for a good is restricted and highly localized, small firms survive.
In an attempt to stimulate the supply side of the economy the government has introduced a number of schemes to help small firms to survive: the enterprise allowance is a weekly sum paid to the unemployed while they are setting up their own businesses; the Business Expansion Scheme provides relief against income tax to investors in unquoted companies.
Advantages and disadvantages of corporations. (2.3)
The majority of businesses are limited companies (US - corporations), in which investors are only liable for the amount of capital they have invested. If а limited company goes bankrupt, its assets do not cover the debts, they remain unpaid (i.е. creditors do not get their money back).
Corporations have some advantages. First, аcorporation has limited liability. Thus if the corporation goes bankrupt or is sued, the stockholders lose only the value of their stock. Second, corporations have the ability to гаме 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. Third, аcorporation has an unlimited life. That is the corporation continues to function despite death, transfer, or changes in ownership, management, or labour.
Corporations have disadvantages as well as advantages. First, complex forms must be filed with the state or federal government. А charter must then be issued, investors found, shares sold, and manufacturing or sales begun. Second, а corporation's profits are subject to double taxation. А 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 а single proprietorship or partnership, profits are divided among fewer individuals. Therefore, individual incomes are often greater. Fourth, а corporation's owners do not directly control the business.
In very large firms the shareholders have very little to do with the day-today running of the firm. This is left to the management. The organizational structure of somecompanies is very hierarchical with а board of directors at the top and the various departmental heads reporting to them.
