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TRANSCRIPT
UNIVERSITATEA „TIBISCUS“ DIN TIMIŞOARA
FACULTATEA DE JURNALISM, COMUNICARE
ŞI LIMBI MODERNE
LUCRARE DE DIZERTAȚIE
COORDONATORlect. univ. dr. Andrea Kriston
CANDIDAT ALINA STANCI
TIMIȘOARA2010
UNIVERSITATEA „TIBISCUS“ DIN TIMIŞOARA
FACULTATEA DE JURNALISM, COMUNICARE
ŞI LIMBI MODERNE
GENERAL ASPECTS ON THE BUSINESS ENVIRONMENT AND
USEFUL TERMINOLOGY
COORDONATORlect. univ. dr. Andrea Kriston
CANDIDATALINA STANCI
TIMIȘOARA
4
2010
Introduction
Economics is part of our life, either we are students at the Faculty of Languages, a
banker or a simple tax payer, we all deal with economics, some of as more aware than
others of this aspect. For instance, although I study languages, I confront myself with
economics in my day-to-day life; I must bear in mind the financial responsibilities I have
to meet, such as paying a rent. Although I am not an economist, I must keep track of
some economic factors such as currency, depreciation of the Romanian national currency
due to inflation or other factors. Or, at a certain point we all depend on banks and the
services they provide, we must be aware of the maturity date for paying instalments, the
interest we are charged on loans and so on.
This field is not totally unknown to me as I got familiarized with it from a
linguistic point of view by studying it for a semester. Because a semester is not enough to
cover such a large field, I chose to elaborate my paperwork around the business domain,
namely to focus on companies, in order to enrich my vocabulary with specific terms of
this domain. This choice is also related to the fact that, on entering the labour market, by
getting a job in a multinational company, the research for this paper may be a useful tool
to learn more about the business environment. As a consequence the purpose of this
paper, as the title suggests, is to bring into light a part of the English terminology used in
business.
The core of the paper is represented by the business entities and I try to focus on
the classification of business entities according to the type of ownership, to present the
general aspects each business entity implies, and to also focus on the key departments
and the financial institutions companies rely on for different purposes. In addition to the
theoretical aspects of the points above mentioned, the paper provides useful terminology
for each chapter in bilingual mini-dictionaries.
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General Aspects on the Business Environment and Useful Terminology is
organised in four chapters covering some key features of companies, completed by a
mini-dictionary providing terms of economics, which appear in the corpus of the paper,
or are related to that specific topic developed in the chapter, their English definition and
the Romanian Equivalent of each term. The glossaries’ aim is to help the reader
understand easily the terminology used in the paper.
The first chapter is called Legal Forms of Business Organizations and focuses on
the business entities. I will refer to the English business entities, as well as to the
Romanian ones. The chapter begins with a short introduction on the evolution of
business through history, referring especially to the key moments in the development of
the English business field. The business entities will be identified further on, on the basis
of a classification according to the type of ownership. Words like sole proprietorship,
partnership, public limited companies or trusts, are often used in the first chapter as I try
to define each business entity, to compare them according to their characteristics.
Corporate objectives is a subchapter which reveals the objectives a firm may have and the
last part of this firs chapter focuses on the Romanian business entities and the differences
between them.
The second chapter, Companies from Raising Capital to Liquidation, brings into
light the stages a company faces through its life, highlighting the steps to be followed in
order to set up firm, the means of raising capital, the importance of shares, bonds and
borrowings in raising funds, etc. Further on, once a company has begun its activity, it is
subject to corporate taxation and I will talk about corporate tax and expanses which are
tax deductible. Unfortunately, business is not a secure field, because factors which may
interrupt its activity may influence its performance. As a consequence, the last part of the
chapter is designated to defining terms such as liquidation, winding up or bankruptcy, as
well as the procedure which needs to be followed in such cases.
The third chapter, Business Accountancy and Financial Reports refers to the most
important department of a company, the accountancy department, dealing with the
activities afferent to this department. Beginning with a short introduction on the
appearance of accountancy, the chapter also contains concepts such as financial and
management accounting, balance sheet, account, accounting plan, defining these concepts
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and giving a general presentation of the accounting activity and its importance to
companies. I approach the accounting field by focusing on the general accounting
principles, on the chart of accounts used in financial accounting submitted both in
Romanian and English, on the key entries in the balance sheet such as assets and
liabilities. A classification and description of assets and liabilities is also included in the
chapter. In order to complete the chapter, in the last part I will talk about audit and the
influence of auditors on companies.
Banking Services and Means of Payment is the last chapter. I chose to talk about
banks, because they are a very important entity of the external environment of businesses.
Business could not exist without banks, they are vital to the well performance of
companies thanks to the services they provide such as carrying out transactions, or
offering borrowings. The chapter commences with a classification of banks and continues
with the services they provide. In this part, terms such as current accounts, cheques,
credit cards or pledges and liens will be defined. Further, I will focus on the means of
payment available through banks by highlighting some of the most important means of
payment used in local, as well as in international banking. The terminology to this
chapter will be further on presented and explained in the glossary afferent to the Banking
chapter.
This paper provides general features of the business environment by combining
the theoretical aspects on the topics presented herein, with the useful terminology for
each chapter.
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1. Legal forms of Business Organizations
1.1 Short history on the evolution of business
The business world is a moving target. It has changed rapidly over the years and
is continuing to do so at an accelerating rate. In the past, slower communication and
local, rather than international competition meant that companies were under less time
pressure. In the present, companies, banks, service providers and manufacturers alike, all
exist in a huge global market place, thanks to the continuous technology development.
Given the limitation of individual resources and initiative, the tendency to
associate with others to do business is as old as trade itself; either they are family,
associates whose number increases the influence and the bargaining power of the group,
or partners that provide money or specific skills. These groups evolved during the past
centuries.
In the Middle Age there were guilds of merchants to protect and extend the
interests of the individual trader. During the Renaissance period, in order to benefit from
the natural wealth of recently discovered regions, merchant associated with sailors.
However, the losses were borne individually by the partners in the venture. In the
sixteenth and seventeenth century, chartered companies were granted trading monopolies,
and raised money in the form of joint-stock provided by investors who were not
necessarily merchants or sailors, but who wanted to share in the profits. (According to
Graham Donnely, 1981)
According to Marcheteau & co, the concept of limited liability, the limitation of
the liability of financial contributors to the amount of their contribution, had actually
existed since Roman Law but it was not clearly recognized legally, and commercial
practice had do without it by combining partnerships and trusts, in which the property of
the partnership was vested, thus creating screen between the partners and their individual
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liabilities. It was The South Sea Bubble Act (1720) that put a temporary end to the
evolution towards limited liability. The failure of a company founded in 1711 to deal
with Spanish America, entailed such a financial disaster that Parliament, fearing the
renewal of such speculations, passed an Act prohibiting actions as corporate bodies and
made the raising of transferable stock illegal. (2005:421)
However, it would take a century of legal and political squabbling to fully arrive
at the legal notion of limited liability as we know it today. The groundwork for this was
laid by a succession of Acts of Parliaments that culminated in the 1862 Companies Act
which created the modern form of joint-stock, limited liability companies.
Winners of the future will be those who can best understand the environment in which they operate and who have the ability to exploit changing market conditions by anticipating correctly future trends and demands. […] In modern business, information is vital in decision-making. The quality of any decision depend on the relevance, accuracy and timeliness of the information available. […] Information is the essential word in business environment and the key to progress.(According to “The Times” and “Business Planning”, by Bill Richardson, Roy
Richardson, 1992, p.122)
As world competition heats up, and as customs barriers are lowered, large firms
which used to be dominant on their home market have to face foreign companies. In
order to remain or become a key player in today’s business world implies operating
abroad and dealing with foreign partners.
1.2 Types of Business Organizations
Business is a legally-recognized organizational entity existing within an
economically free country designed to sell goods and/or services to consumers, usually in
an effort to generate profit, according to The American Heritage Desk Dictionary.
In predominantly capitalist economies, where most businesses are privately
owned, businesses are typically formed to earn profit and grow the personal wealth of
their owners. The owners and operators of a business have as one of their main objectives
the generation of a financial return in exchange for their work and their acceptance of
risk. Notable exceptions to this rule include cooperative businesses and government
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institutions. This model of business functioning is contrasted with socialistic systems,
which involve government, public, or worker ownership of most sizable businesses.
According to Martin Buckley, the features characteristic to the enterprise system
are private ownership, freedom of choice, competition and free market. The first feature,
the private ownership refers to the right of anyone to purchase any kind of production,
equipment, buildings or shares in order to carry on business or for any other private
purpose. By freedom of choice, the author means that business may use whatever
resources they wish, as they wish to, and enter those markets they believe to be most
profitable. Further, firms compete with other firms for their business. Unless they provide
goods and services that the consumer likes at competitive prices, they will very quickly
go out of business. Lastly, it is the free market in which businesses and individuals buy
and sell goods and services that prices are determined. (Buckley, 1990:3)
1.2.1. Sole Proprietorship
A sole proprietorship is a business enterprise exclusively owned, managed and
controlled by a single person with all authority, responsibility and risk, as defined by
www.businessdictionary.com. The sole proprietor or the sole trader organizes the
resources in a systematic way and controls the activities with the sole objective of earning
profit.
William H. Peterson talks about the main characteristics of a Sole Proprietorship
which are as follows:
Single ownership – The individual owns all assets and properties of the
business. Consequently he bears alone all the risks. Thus, the business can come to an
end at the owner’s will or upon his death.
No sharing of profit and unlimited liability – The sole proprietor, on one
hand benefits of the entire profit arising from the business, on the other hand bears all
the losses and all debts from personal resources in case of company insolvency.
One man’s capital and control – The entire capital is provided by the
single owner who also has full autonomy with regard to business decisions. However
some disadvantages may appear as the owner will likely have a hard time raising
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capital since it has to make up for all the business's funds as well as in the situation
where the business becomes successful and the risks accompanying it tend to grow.
To minimize those risks, a sole proprietor has the option of forming a corporation, or
a Limited Liability Company.
Less legal formalities – Easy to set up, a sole proprietor has to comply
with almost no legal formalities except for those businesses where require license
from local authorities or the health departement of government. (Peterson, 1990)
Referring to sole proprietorship Graham Donnelly said (1991: 46):
A sole proprietorship is a one-man business in which one person is alone responsible for decision-making and the raising capital, though, there may be several other people working in the firm/ It is in this type of business that the entrepreneur, the organiser of production, can be the most easily identified as it is here that the functions of the entrepreneur are united in one person – those of innovation, risk-taking and profit-earning. Not all sole proprietors are innovators, many take over established businesses, but they all risk their own capital and reap either the profit or losses which result from their efforts. Though the sole proprietor enjoys the unity of prupose and flexibility of a small organisation, the price of failure can be very high.
1.2.2. Partnership
A partnership represents a bussiness relationship in which two or more persons
agree to furnish a part of the capital and labour for an enterprise and to share the profits
or losses. (According to The American Heritage Desk Dictionary). In order to start a
partnership business, at least two members are required, but the number should not
exceed 10 in case of banking business and 20 in case of other types of business.
There are two categories of partnership. In an ordinary partnership, a general
partnership, all the partners are jointly and severaly liable for the debts of the firm. In a
limited partnership, limited partners are only liable to the extent of their own financial
contribution. But they do not take an active part to the running of the business. However,
there must be at least one general partener or an active, or acting partner whose liability
for the debts of the firm is not limited. He may be called upon to settle such debts to the
extent of his real and personal property.
Partners may have a partnership agreement, or declaration of partnership which in
some jurisdictions may be registered and available for public inspection. This agreement
should refer to the amount of capital invested by each partener, the profit or loss sharing
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ration, salary or comission payable to the partner, duration of business, the duties and
powers of each partner etc.
As in the case of sole proprietorship, the unlimited liability feature applies as well
to partnership. All parteners share the business risks and are jointly or separately liable
for the company’s debts and may cover them from personal resources. As for the
transferability of share, a partener may transfer his share to an outsider only with the
consent of the others .
According to William H. Peterson (1990), the partnership has the advantage of
pooling managerial talent. While one partner may be qualified in production, another may
be qualified in marketing. Another advantage, in the United States is that the partnership,
like individual ownership, has favourable tax position when compared with corporations.
On the other hand, a major disadvantage is that decision-meking is shared. However, in
America, the partnership is a vital part of the overall business economy.
The partnership differs from a company or corporation in the sense that the latter
is considered as a legal person or entity, in its own right, separate and apart from its
shareholders, whereas the partnership is viewed as an aggregation of separate individuals
doing business under a common name. This is why, unless specified otherwise in the
partnership agreement, the death of one of the partners will bring the partnership to an
end.
1.2.3 Companies
A company is the primary legal entity through which business activity is carried
out in most market-based economies. Companies maintain a different legal personality
from those of their shareholders who have limited power to directly manage the
corporation.
The shareholders are granted limited liability protection, which means that they
can only lose the full amount of their investement but not their personal assets. In most
jurisdictions, companies are divided in public limited companies (joint stock or share)
and private limited companies (companies limited by shares or guarantee).
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Certain legal requirements must be met before a company comes into existance.
Its name, object and proposed capital must be set out in what is called the “Memorandum
of Asociation” to which there must be at least two subscribers or shareholders if it is to be
a private company and at least seven if it is to be a public one. The rules for running it,
dealing with profits, paying dividends, calling meetings of shareholders and other matters
which affect their interests and the management are laid down in the “Articles of
Asociation”.
Everything must be registered with a government official, The registrar of
Companies, before he will issue a registrar permitting the Company to start business.
Copies of these documents together with various returns which must be annualy or when
there are changes in the capital, changes of directors or other vital matters, are put into a
file which is available for public inspection at the Company Department of the board of
tradeat Companies House.
1.2.3.1. Private limited company
This type of a company organization allows the business to be privately owned
and managed. It is thus particularly suitable for a medium-sized commercial or industrial
organization not requiring finance from the public or for a speculative venture where a
small group of people wishes to try out an idea and is prepared to back it financially to a
definite limit before floating a public company. (According to Rachmand, 1990:39)
Considerably more numerous than public companies, private limited companies
are much smaller. They encounter difficulties when they want to expand, as neither their
shares nor debentures can be offered for sale to the public. Thus, in order to find
additional investors, it is usually necessary to convert the business into a public company
with its shares quoted on a Stock Exchange. David J. Rachmand states that before
embarking on such an issue, the company must have a fairly substantial size and arrange
for a life insurance company or an investment trust to purchase shares or debentures.
Help may be obtained from the new-issue market, where both issuing houses and
merchant banks may help firms to raise capital. But in order to obtain a loan, it has to
pass first a searching investigation regarding its present financial position and business
prospects. (Richmand, 1990:39)
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1.2.3.2. Public limited company (plc)
This type of company rests on two main principles: the joint-stock principle, that
is the provision of capital through the individual contributions of a large number of
investors, and the limited liability principle which refers to the limitation of the
shareholders’ liability to the nominal value of their shares. (According to Rachman,
1990:40) However, the limited liability principle facilitates capital investments as it is the
most flexible medium for raising capital. The liability of the investor is limited to the
amount he has agreed to contribute into the capital.
It carries the letters plc after its name and is the largest of all types, and at least
two shareholders own it, but most of them have hundreds or even thousands of
shareholders. As opposed to private limited companies its shares can be issued to the
public and can be sold through the Stock Exchange. A private company can go public and
apply to the Stock Exchange to be listed or quoted in order to become a public limited
company. The company will have to satisfy the council of the Stock Exchange that is
soundly based and a reasonable investment for the public.
The members must agree to take some, or all, of the shares when the company is
registered. The Memorandum of Association must show the names of the people who
have agreed to take shares and the number of shares each will take. These people are
called the subscribers.
Rachmand mentions that there is a minimum share capital for public limited
companies. Before it can start business, it must have allotted shares to the value set by the
state, the company is set up in. Each allotted share must be paid up to at least one quarter
of its nominal value together with the whole of any premium. (Rachmand, 1990:40)
A company can increase its authorised share capital by passing an ordinary
resolution, unless its articles of association require a special or extraordinary resolution.
A company can decrease its authorised share capital by passing an ordinary resolution to
cancel shares which have not been taken or agreed to be taken by any person. Notice of
the cancellation, must reach Companies House within one month.
A company may have as many different types of shares as it wishes, all with
different conditions attached to them. The shares of a public limited company are freely
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transferable and there are no limits on the number of shareholders. This two features
enables public limited companies to issue registered or bearer shares, offer them to the
public or trade them on a stock exchange. In exchange for such flexibility, plc submit
themselves to rigurous regulation and supervision such as frequent and deatiled financial
disclosure and enhanced accountability at the board level.
A public limited company has access to capital markets and can offer its shares
for sale to the public through a recognised stock exchange. It can also issue
advertisements offering any of its securities for sale to the public. In contrast, a private
company may not offer to the public any shares in itself.
Formation of a public limited company requires a minimum of two directors. In
general terms anyone can be a company director,as Martin Buckley (1990) says,
provided they are not disqualified on one of the following grounds:
in case of public limited companies or their subsidiaries, the person is over
70 years of age or reaches 70 years of age while in office, unless they are appointed
or re-appointed by resolution of the company in general meeting of which special
notice has been given.
the person is an undischarged bankrupt, or disqualified by a Court from
holding a directorship, unless given leave to act in respect of a particular company or
companies.
1.2.4. Trusts
A trust is a right of property, real or personal, held by one party for the benefit of
another or others. (According to www.businessdictionary.com) In a trust, the original
owner of the property, the settlor, places his propriety in confidence, or trust, into the
hand of a person, with a view that this person, the trustee, shall hold the property for the
benefit of another.
According to M. Marchetean & co. the law of trusts dates back to the Middle
Ages, deriving from the “feudal use” invented to soften the hardship on the common law
rules preventing land from being devised, left by will, and to alleviate the feudal burdens
imposed on freehold tenants. On a freehold tenant’s death his son and heir had to pay the
lord of the manor very high feudal dues. Through the use by which the freehold tenant
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“enfeoffed” one or several friends, these friend became the legal owners of the land in
the eye of common law, and they gave the tenant the revenue of his land. On the tenant’s
death , the heir did not have to pay any feudal dues, because the land still belonged
officially to the friends who had been “enfoeffed”, and who gave the new beneficiary the
revenue of the land. The common law regarded the feoffes as the legal owners of the
land, in order to prevent them from using the land in a way that was a breach of their
obligations, The Court of Chancery intervened in equity and protected the rights of the
beneficiary. Later, uses were called trusts. (Marcheteau&co., 2005: 467)
Nowadays, trusts are used for various purposes: to allow minors or other persons
incapable of law to benefit from the revenues of the land; to allow settlemnts by which
property can benefit several persons in succession; to enable two or more persons to hold
land; to establish charitable foundations; to avoid oe minimise liability to taxation.
The main characteristic of a trust is that it creates dual ownership. The trustee is
the legal owner and the beneficiary is the equitable owner, which means the equity
compells the trustee to respect his obligations under the trust and to serve the profits of
the property to the beneficiary.
Business trusts are an extension of the trust system, it represents an association or
organization of persons or corporations having the intention and power to create
monopoly, control production, interfere with the free course of trade or transportation, or
to fix and regulate the supply and the price of commodities. The trust was originally a
device by wich several corporations engaged in the same general line of business for
their mutual advantage, in the diretion of eliminating destructive competition, controlling
the output of their commodity, and regulating and mantaining its price, but at the same
time preserving their separate individual existance and without any consolidation or
merger. (According to Marcheteau&co., 2005: 468)
1.2.5. Joint Ventures
A joint venture on a continuing basis is a contractual business undertaking. It is
similar to a business partnership, with two differences: the first, a partnership generally
involves an ongoing, long-term business relationship, whereas an equity-based joint
venture comprises a single business activity. Second, all the partners have to agree to
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dissolve the partnership whereas a finite time has to lapse before the joint venture
automatically comes to an end or is closed by the Court due to a dispute.
The term joint venture refers to the purpose of the entity and not to a type of
entity. Therefore, a joint venture may be a corporation, a limited liability enterprise, a
partnership or other legal structure, depending on a number of considerations such as tax
and tort liability.
They are normally formed both inside one's own country and between firms
belonging to different countries. Within one, they usually combine different strengths in a
field or are formed because of legal restrictions within a country; for example an
insurance company cannot market its policies through a banking company. Many joint
ventures are also formed because the law of a country allows dispute settlement, should it
occur, in a third country. They are also formed to minimize business, tax and political
risks. It represents an alternative to the parent-subsidiary business partnership in
emerging countries, discouraged, on account of ignoring national objectives, slow-
growth, parental control of funds, and disallowing competition.
Today, the term applies to more occasions than the choice of joint venture
partners. For example, an individual normally cannot legally carry out business without
finding a national partner to form a joint venture. Also, it may be an easier first-step to
franchising.
M. Marcheteau & co. mentions some of the reasons for forming a joint venture
the further benefits which may be taken into account: reduction of 'entry' risks by using
the local partner's assets; inadequate knowledge of local institutional or legal
environment; access to local borrowing powers; perception that the goodwill of the local
partner is carried forward; in strategic sectors, the county's laws may not permit foreign
nationals to operate alone; access to local resources through participation of national
partner; influence of local partners on government officials or 'compulsory' requisite;
access by one partner to foreign technology or expertise, often a key consideration of
local parties; again, through government incentives, job and skill growth through foreign
investment, and incoming foreign exchange and investment. (Marcheteau&co., 2005:
433)
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However, downsides of a joint venture are also to be considered: differing
philosophies governing expectations and objectives of the joint venture partners; an
imbalance in the level of investment and expertise brought to the joint venture by the two
parent organizations; inadequate identification, support, and compensation of senior
leadership and management teams or conflicting corporate cultures and operational styles
of the joint venture partners. (According to M. Marcheteau & co. 2005:434)
A joint venture can terminate at a time specified in the contract, upon the death of
an active member or if a court so decides in a dispute taken to it.
1.3. Corporate Objectives
Objectives are the end results to be achieved. In this context the term ‘corporate
objectives’ has been used broadly to cover the objectives for an organisation as a whole
and for each business unit as a part of that whole.
Performance objectives consist of the financial requirements for the organisation
and other key result areas, which are critical for the organisation’s short-term and long-
term success. These include profitability, return on investment (ROI), return on assets
(ROA), earnings per share (EPS), dividends and cash flow. They are usually determined
on the basis of satisfying the needs of the stakeholders, which includes shareholders and
others who might have a ‘stake’ in the business such as management, employees,
customers, suppliers and creditors. The driving force underpinning financial performance
in the majority of cases is shareholder value. If the organisation performs well
financially, share prices are maintained or increased. If financial performance is below
expectations, share prices drop, limiting the organisation’s ability to attract equity
financing to underwrite future operations and growth while also exposing the
organisation to the danger of a takeover. Poor financial performance, particularly cash
flow, also limits an organisation’s ability to attain debt financing. (According to Graham
Donnely, 1991)
However, the use of financial performance objectives alone is a dangerous
preoccupation for top management. Shareholder value can be enhanced in the short term
by cost-reduction strategies such as downsizing and the reduction of product quality. In
the long term this might cause customers to become dissatisfied with the organisation’s
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products or services, which in turn could lead to a loss of market share, reduction of
profitability and eventual decline in share price. That is, a focus on short-term
shareholder value can lead to the diminution of customer value with a resultant loss of
competitive advantage and a decrease in long-term financial performance. In order to
provide a broader perspective of the organisation’s direction a number of non-financial
performance objectives should be included as either corporate or business objectives:
improvement in innovativeness, improvement in operational efficiency, improvement in
product quality, improvement in customer satisfaction, social responsibility and
employee welfare.
1.4. The Romanian Business entities
In Romania, commercial companies exist under the following business entities:
general partnership ≈ s.n.c (societate în nume colectiv) ;
limited partnership ≈ s.c.s. (societate în comandită simplă):;
p.l.c (public limited company) ≈ S.A. (Societate pe Acţiuni): ;
limited partnership by shares ≈ s.c.a. (societate în comandită pe acţiuni);
Ltd. (limited liability company) ≈ S.R.L. (societate cu răspundere
limitată).
1.4.1. General Partnerships
A general partnership can involve two or more partners. The partnership
relationship is based upon a contract and any person who is capable of entering a binding
contract may enter a partnership. Following this agreement, the parties must register their
partnership with the National Trade Register Office.
Partners are jointly liable for the debts and obligations of the partnership and each
partner can be personally liable for the overall debts and liabilities, which are not
satisfied by assets of the partnership.
The capital of the partnership is formed of the partners’ contributions which may
include cash, real estate, equipment, or other property. Contributions become assets of the
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partnership and comprise its registered capital. Romanian laws do not set maximum or
minimum limits on capital, nor does it indicate how much must be in cash or assets.
These decisions are left with the partners.
A general partnership must select a name for itself, included in this name must be
the name of one individual partner, the nature of the partnership, and disclosure of the
general partnership status of the enterprise. If a person who is not a partner permits his or
her name to be used in the name of the partnership, that person then becomes liable for
the debts and obligations of the partnership together with the general partners.
General partnership matters are determined under a written partnership
agreement. Where the agreement is silent or unclear, decisions are made by partners on
the basis of their relative capital contributions. If a partnership seeks to have a formal
management, perhaps because of its large size, a vote of the partners representing a
majority of the registered capital is required.
1.4.2. Limited Partnerships
A limited partnership consists of one or more general partners who manage the
business of a partnership and one or more limited partners who contribute capital to a
partnership but do not participate in its management. Generally, limited partners are not
liable for the debts and obligations of the partnership beyond their contributions, to the
registered capital. The liability of the general partner is the same as the liability of
partners in a general partnership. For an investor, therefore, being a limited partner is
similar to having an investment in a corporation.
Limited partners share the profits or other compensation by way of income in
proportion to their partnership contributions. However, no such income or other
distribution can be made if it would reduce the assets of the limited partnership to an
amount insufficient to discharge its liabilities to persons who are not partners.
While the limited partners cannot manage the business, they may examine the
state and progress of the partnership business and advice on its management. A limited
partner may also act as a contractor for, or an employee of, the limited partnership.
Company Laws generally set out the rights, powers and obligations of limited
partners. For example, a limited partner may be held liable as a general partner if the
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limited partnership legislation is not strictly complied with; When a limited partner
participates in the management of the partnership’s business without having been
mandated to that effect by company’s representatives, by means of a special power-off
attorney, registered with the trade register, or allows his or her name to be used in the
name of the limited partnership.
A limited partnership is a practical form of organization for a pooled investment
where the investors would not normally participate in the control of the investment.
Investors are limited partners while the general partner provides the professional
management of the investment. In this way, investors share the profits but, as limited
partners, their financial risk is limited to the capital they have contributed.
1.4.3. Limited Liability Companies
A limited liability company is a company formed by a limited number of partners
(no more than 50). It is based on the constitutive documents. The registered capital of a
limited liability company cannot be less than 200 RON (Romanian LEU). The registered
share capital of a limited liability company is normally divided into social parts/shares
with a registered value of not less than 10 RON. Shares cannot be freely traded, making
limited liability companies similar to what are known as private companies in other legal
systems. Shares of these companies cannot be pledged as collateral for loans.
Decisions are made by majority vote in the General Meeting of the Shareholders
(1 share = 1 vote). Decisions involving changes in the constitutive documents must be
agreed by all shareholders if these documents do not state otherwise. One or more
Directors/Managers are appointed in the constitutive documents or by the General
Meeting and are put in charge by the management of the company.
The majority of companies registered in Romania, whether domestic or foreign-
owned, are limited liability companies.
1.4.4. Public Limited Companies
A public limited company is a limited liability corporation with registered capital
of a minimum of 25.000 EURO, equivalent RON and with at least five shareholders.
21
When an SA is established, at least 30% of the share capital, or 100% in respect of
contributions in kind, must be immediately contributed upon formation of the company
and all registered share capital must be fully paid up within twelve months of formation.
Shares could be nominative shares or bearer shares and can be freely traded or
pledged. A joint stock company may be set up privately or by public subscription.
The Registrar’s office will certify compliance with Romanian legislation and will
authorize the release of the prospectus. Establishing of a p.l.c. by prospectus is only
possible if the entire registered capital outlined in the prospectus has been subscribed and
half of the prices of the shares subscribed for have been paid up into a bank account. If
public subscriptions exceed the registered capital, as outlined in the prospectus, or are
less than the amount sought therein, a meeting of the shareholders should be held to
approve any revisions of the capital structure.
Within 15 days from closing of the subscription, a founding meeting must be
held. This meeting receives evidence that capital has been subscribed and sets the value
of any contributions in kind, approves the basis for profit-sharing among the founders of
the company and other shareholders and appoints directors and auditors.
1.3.5. Limited partnership by shares
A limited partnership by shares is a rare form of limited partnership. It has
characteristics of both a public limited company and a limited partnership. At the same as
in a limited partnership there are general and limited partners. The registered capital is
represented by shares. The general partners may be liable for the debts and obligations of
the company beyond amounts they have contributed. The limited partners, not active in
the management of the company, have their liability limited to their share stake.
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Useful Terminology
TERM DEFINITION ROMANIAN EQUIVALENT
affiliated company Entity holding less than a majority of the voting common stock of another related company, or in which both companies are subsidiaries of a third company. Often the same management oversees and operates both companies. Interrelationships exist between the activities of the entities.
companie afiliată
allotment of shares Part of an amount of shares that is given to someone
repartizarea acțiunilor
annual general meeting(AGM)
Gathering of the directors and shareholders of every incorporated firm, required by law to be held each calendar year whose main purpose is to comply with legal requirements, such as the presentation and approval of the audited accounts, election of directors, and appointment of auditors for the new accounting term etc.
adunare generală anuală
be jointly and severally liable for
Two or more people are found liable for damages
a răspunde solidar pentru
bearer share Share owned by the person who holds the share certificate, and transferable by delivery. In comparison, a registered share can be transferred only through an instrument of transfer.
acțiune la purtător
board of directors Governing body of an incorporated firm. Its members are elected normally by the shareholders of the firm to govern the firm and look after the subscribers' interests.
consiliul de administrație
bond/debenture Certificate indicating part of property of a debt due by a company issuing it
obligațiune
bonus share Free shares of stock given to current shareholders, based upon the number of shares that a shareholder owns.
acțiune gratuită
cash flow Cash coming in less the cash going out during a given period
flux de numerar
capital Wealth in the form of money or property capital
23
owned by a person or business and human resources of economic value.
chartered companies Associations for foreign trade, exploration, and colonization that came into existence with the formation of the European nation states and their overseas expansion.
companii autorizate
Companies House Organization that is legally responsible for making sure that the official list of companies in a country
Camera de Comerț
commodity A physical substance, such as foods, grains, and metals, which is interchangeable with another product of the same type, and which investors buy or sell, usually through futures contracts.
marfă, produs
convertible bonds A corporate bond, usually a junior debenture, that can be exchanged, at the option of the holder, for a specific number of shares of the company's preferred or common stock.
obligațiuni convertibile
debt financing Financing by selling bonds, bills or notes to individuals or institutions.
finanțare prin imprumut
demerger Separating firms that had previously merged, or in turning a previously acquired firm into a subsidiary.
sciziune
divestiture/divestment 1.Disposition of an asset by sale, liquidation etc;2.Case when a company has to redistribute the shares it dad invested in another company.
cesiune de active
dividend The share of a company’s profit paid to the investor or shareholder.
dividend
equity financing Financing by selling ordinary shares or preferred shares to investors.
finanțare prin acțiuni
franchise Licence granted by a franchiser to a franchisee to operate a business under the former’s corporate name against payment of a royalty and compliance with certain standards.
franciză
general partnership A partnership in which all partners are general partners.
societate în nume colectiv
go public To offer the stock in a privately held company for sale to the public for the first time either as a means of raising funds or in order to become a publicly traded company
a se transforma în societate publică
insurance company A company that offers insurance policies to the public, either by selling directly to an individual or through another source such as an employee's benefit plan.
firmă de asigurări
issued capital An amount of capital which is formed of capital subscris
24
money paid for shares issued to stockholders
joint stock company A company which has some features of a corporation and some features of a partnership. The company sells fully transferable stock, but all shareholders have unlimited liability
societate pe acțiuni
joint venture A contractual agreement joining together two or more parties for the purpose of executing a particular business undertaking. All parties agree to share in the profits and losses of the enterprise.
societate mixtă
limited liability company A type of corporation that is owned by a limited number of shareholders in a small business
societate cu răspundere limitată
limited company by shares
Business entity with shareholders with Limited liability whose shares may not be offered to the general public, unlike those of a Public limited company
societate anonimă pe acțiuni
limited partner A partner who has limited legal liability for the obligations of thepartnership.
comanditar
limited partnership A partnership that includes one or more partners who have limitedliability.
societate în comandită simplă
Memorandum of Association
Document that regulates a firm's external activities and must be drawn up on the formation of a registered or incorporated firm.
act constitutiv
merger/amalgamation Combination of two or more companies by combining accounts or by consolidation;
fuziune
monopoly Market situation where one producer controls supply of a good or service, and where the entry of new producers is prevented or highly restricted. Monopolist firms, in their attempt to maximize profits keep the price high and restrict the output, and show little or no responsiveness to the needs of their customers.
monopol, organizație deținătoare al unui monopol
redemption of bonds The repurchase of bonds by the issuer of the bonds
rambursarea obligațiunilor
registered capital
Maximum value of securities that a firm can legally issue.
capital nominal
return on investment (ROI)
A measure of a corporation's profitability, equal to a fiscal year's income divided by common stock and preferred stock equity plus long-term debt.
randamentul investițiilor
return on assets (ROA) A measure of a company's profitability, equal to a fiscal year's earnings divided by
randament al capitalurilor curente
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its total assets, expressed as a percentage.Registrar of Companies The registrar responsible for recording and
maintaining certain details of the new and existing firms within his or her jurisdiction
registrul comertului
shareholder/stockholder Individual, group, or organization that holds one or more shares in a firm, and in whose name the share certificate is issued.
acționar
share warrant Document which says that someone has the right to a number of shares in a company
titlu la purtător
sleeping partner Partner who shares risks and rewards of an enterprise or venture with other partners, but does not take part in its day-to-day management.
partener pasiv
sole proprietor/owner/trader
Sole owner of a business proprietar unic
statutory meeting Shareholders' meeting that an incorporated or registered firm must have within the specified period under corporate legislation.
adunare statutară/constitutivă
Stock Exchange An exchange on which shares of stock and common stock equivalents are bought and sold.
Bursa de schimb
supplier External entity that supplies relatively common, off the shelf, or standard goods or services, as opposed to a contractor or subcontractor who commonly adds specialized input to deliverables
furnizor
tax liability Debt to a government incurred by a tax payer as accrued or assessed taxes.
taxe datorate statului
trust A legal arrangement in which an individual (the trustor) gives fiduciary control of property to a person or institution (the trustee) for the benefit of beneficiaries.
act de mandat/drept de uzufruct/trust
turnover Annual sales volume net of all discounts and sales taxes. Number of times an asset (such as cash, inventory, raw materials) is replaced or revolves during an accounting period.
cifră de afaceri
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2. Companies from raising capital to liquidation
2.1. Setting up a company
Setting up of a company begins with lodging a Memorandum of Association
and the Charter of the company or Articles of Association with the Registrar of
Companies.
According to Martin Buckley (1990), the Memorandum generally contains
clauses stating:
the name of the company and its logo. The company is free to choose its
name, within certain bounds. The Department of Trade will not allow a name which
is too similar to that used by an existing company, especially one in the same type of
business.
the country in which the registered office is located.
limitation clause which shows whether the company is limited by shares
or by guarantee, as commercial companies are limited by shares, or non-profit bodies,
such as professional associations, are limited by guarantee.
the objects for which the company was constituted; this states the type of
business that the company will undertake, in order to protect investors from putting
their money into a company which would then use it in a different manner.
the capital clause which gives details about the amount of the authorized
capital and its division into shares as well as the different categories of shares.
the association clause which states the names of the founder members and
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the number of shares they each subscribed for.
rules of dissolution and liquidation of the company.
Lodged together with the Memorandum, The Articles of Association represent
a contract between the company and its members comprising rules and regulations for
the internal activity of the company and specifying such things as: the voting power
of its members; the appointment of directors; the distribution of the profits, etc.
After the Memorandum and the Articles of Association have been registered
and the necessary fees have been paid, the Registrar issues the Certificate of
Incorporation and the company can start doing business. Here are the Governmental
institutions that a company should be registered with: Notary Office, The Court of
Commerce, The Registrar of Commerce, Tax/Fiscal Office, The Gazette. (According
to http://www.legi-internet.ro/index.php?id=10&L=2)
Within 15 days from the date of registration of the Articles of Association, the
founders or the administrators of the company will request the incorporation of the
company in the Commercial Register in the area where the head office of the
company will be located.
The court may declare nullity of the company register with the Trade Register
if the Articles of Incorporation are missing or were not concluded in authentic form,
or the activity of the company is illegal or against public order. This may happen also
if the decision of the delegate judge to incorporate, or the legal administrative
authorization to incorporate the company are missing, the Articles of Incorporation do
not stipulate the company’s name, activity object, contribution of the associates and
the subscribed capital or if the legal stipulations regarding the minimum capital,
subscribed and paid have been broken.
2.2. Raising capital
Large corporations have grown to their present size in parts because they have
found innovative ways to raise capital for further expansion. In order to raise new
capital, companies use some primary methods as: issuing of bonds, sales of ordinary
28
shares, issuing preferred shares, borrowings and using profits. According to Olea
Ciuciuc and Eugenia Tănăsescu (2001, p.178):
Before a company can commence operations it requires start up capital […] no prudent bank or lending institution would consider financing a business in which the owners did not have a personal stake, and shared some of the risks. It is also unwise for a company to operate with too much debt. […] It is also imprudent for a company to finance itself totally with equity, as the initial proprietors would have to fund the entire business. It is usual for a business to finance itself with both debt and equity […]
Financial decisions are crucial. The secret of success in financial management
is to increase value. The problem is how to do it. The financial manager has two
broad responsibilities: what investment should the firm make and how should it pay
those investments. The first involves spending money; the second involves raising it.
(According to Ciucuc, Tănăsescu, 2001)
Companies need an almost endless variety of real assets. To obtain the
necessary money, the company sells financial assets or securities. Their value consists
in their claim on the firm's real assets and the cash they produce. If the company
borrows money from the bank, the bank has a financial asset that gives it a claim to a
stream of interest payments and to repayment of the loan. The company's real assets
need to produce enough cash to satisfy these claims. Financial assets include not only
bank loans, but also shares of stock, bonds, lease financing obligations, and so on.
(According to Violeta Negrea, 2005)
The financial manager stands between the firm's operations and the financial
markets, referred at as sources where the investors hold the financial assets issued by
firms. He traces the flow of cash from investors to their firm and back to investors
again. The flow starts when securities are issued to raise cash to purchase real assets
to generate cash inflows later, to repay the initial investment. The cash is then either
reinvested or returned to the investors who purchased the original security issue.
The shareholders are made better off by any financing decision of the
financial management that increases the value of their stake in the firm. A good
capital budgeting decision is one that results in the purchase of a real asset that makes
a net contribution to value.
Financial decisions cannot be separated from financial markets either. The
financial manager must know whether the value of the firm would increase through
29
an issue of shares to stockholders. He must have considered the interest rate on the
loan and concluded that it was not too high. He must also cope with time and
uncertainty. The investment, if undertaken, may have to be financed by debt that
cannot be fully repaid for many years. The financial manager has to decide whether
the opportunity is worth more than its costs and whether the debt burden can be safely
borne.
The financial manager is anyone responsible for a significant corporate
investment or financing decision. But usually responsibility is spread out throughout
the firm. The engineer who designs a new production facility, the marketing manager
who commits to a major advertising campaign, but also the top manager is, of course,
continuously involved in financial decisions.
Nevertheless, there are managers specialized in finance: the treasurer - the
most directly responsible for obtaining financing, managing the firm's cash accounts
and its relationship with banks and often financial institutions in the financial market,
and making sure the firm meets its obligations to the investors holding its securities.
Violeta Negrea mentions that larger companies usually have a controller who
checks that the money is used efficiently. He manages budgeting, accounting,
auditing. There can be a chief financial officer appointed to oversee both the treasurer'
and the controller's work. He is involved in financial policy making and corporate
planning but he also can have managerial responsibilities beyond strictly financial
issues and may also be a member of the Board of Directors. (Negrea, 2005: 88)
But the ultimate decision often rests by law or by custom with the Board of
Directors. Only the Board has the legal power to declare a dividend or to sanction a
public issue of securities. Boards usually delegate decision-making authority for
small or medium sized investment outlays, but the authority to approve large
investment is almost never delegated.
According to Violeta Negrea a commodity exchange is the market where
commodities are traded. Some commodities are dealt with at auctions, each lot being
sold having been examined by dealers, but most dealers deal with goods that have
been classified according to established quality standards. In these commodities both
actual and future contracts are traded on commodities exchange in which dealers are
30
represented by commodity brokers. Many commodity exchanges offer option dealing
in futures, and settlement of differences on futures through a clearing house. As
commodity prices fluctuate widely, commodity exchanges provide users and
producers with hedging facilities with outside speculators and investors helping to
make an active market, although amateurs are advised not to gamble on commodity
exchanges. (Negrea, 2005:85)
The fluctuations in commodity prices have caused considerable problems in
developing countries, from which many commodities originate, as they are often
important sources of foreign currency, upon which the economic welfare of the
country depends. Various measures have been used to restrict price fluctuations but
none have been completely successful. (According to Violeta Negrea, 2005: 86)
2.2.1 Shares
Shares are products that enable their holders to participate in the
company's activities and benefit from its success or failure. The conditions for
ownership of shares can differ according to the rights they give the shareholders. The
risk involved in buying shares is linked to how the company is expected to behave
and, in particular, what its net profits are expected to be.
Indicators have been created to relate predictions of the company's behavior -
the market price, by which we can assess the market's appraisal of the company.
Shares are securities representing a public limited company's share capital.
Each share represents a part of the company in the hands of the shareholders. All
shares represent equal parts into which the company's capital is divided. All shares
have the same par value. Shares are not divisible, though they can be issued in blocks
of number of shares (5, 10, 50, 100, etc).
When a company is formed, i.e. when the Articles of Association and the
Memorandum of Association are drawn up, they define the classes of share that can
be issued.
31
The different classes of shares differ with regard to the rights they confer on
their holder, as Constantin Milea sustains. Generally share types are divided into the
following categories (According to Milea, 1997):
Bearer shares – Are a legal instrument denoting company ownership, and
are usually in the form of share warrants. A share warrant is a document which states
that the bearer of the warrant is entitled to the shares stated in it. If authorised by its
articles, a company may convert any fully paid shares to "share warrants". These
warrants are easily transferable without any need for a transfer document; that is, they
can simply be passed from hand to hand. When share warrants are issued, the
company must strike out the name of the shareholder from its register of members
and state the date of issue of the warrant and the number of shares to which it relates.
Subject to the articles, a share warrant can be surrendered for cancellation. If so, the
holder is entitled to be re-entered into the register of members. Vouchers are usually
issued with the share warrants in order that any dividends may be claimed.
Cumulative preference – These shares carry a right that, if the dividend
cannot be paid in one year, it will be carried forward to successive years.
Ordinary – As the name suggests these are the ordinary shares of the
company with no special rights or restrictions. They may be divided into classes of
different value.
Preference – These shares normally carry a right that any annual dividends
available for distribution will be paid preferentially on these shares before other
classes.
Redeemable – These shares are issued with an agreement that the
company will buy them back at the option of the company or the shareholder after a
certain period, or on a fixed date. A company cannot have redeemable shares only.
Violeta Negrea also refers to ordinary shares saying that they confer the right
to call a shareholders' meeting; to vote at the meetings, to elect and to be elected to
the company's bodies. The company's Articles of Association may, however, establish
the number of preferred shares a shareholder must have to be entitled to vote. He
receives new shares in the event of capitalization of reserves and they are preferred in
subscribing new shares when they are issued to raise capital or in subscribing
32
convertible bonds. Each shareholder is entitled to subscribe the same number of
shares as he already holds. However, the shareholders' meeting that decides on the
issue may limit or suppress this right to preference. He is also free to transfer shares
or to sell his shares at will. This right is one of the ways of obtaining a return of the
investment, i.e. a gain from the favorable difference between the selling and buying
price. (Negrea, 2005:86)
The dividend is the return on shares. It represents a part of the distributable
profit that is paid on each share. This return is variable as it depends on whether there
are profits in each financial year and on whether the Annual General Meeting agrees
to their distribution, as proposed by the Board of Directors.
A company's dividend policy is represented by the percentage of the profits
generated by the company in a particular financial year that it decides to distribute to
the shareholders.
The dividend is important because it represents a source of income for the
investor and it is an important indicator to current or potential investors of the
company's future profitability. It gives information on the company's projected
growth, thus influencing share prices.
The validity of ordinary shares is indefinite, i.e. it is not established in
advance. The shares exist as long as the company that issues them exists. The
secondary market is the only way shareholders have of getting back the capital they
invested, as they cannot demand a refund of their investment. This is the main reason
why shares are quoted on the stock exchange.
2.2.2. Bonds
Violeta Negrea defines bonds as institutionalized borrowings by governments
or business, with the date of repayment, and the annual rate of interest to be paid
meanwhile, fixed at the time of issue. (Negrea, 2005:87) There are irredeemable
government and corporate bonds, where the interest rate is fixed but no date for
33
repayment. There are floating rate bonds, where the interest rate paid is related to the
changing rate in the market. There are also zero coupon bonds which pay no interest
at all but which are issued at a price very much lower than the repayment due on a
particular date, so that income effectively takes the form of capital gains. There are
index-linked bonds, which pay a small or no rate of interest but whose repayment, at
some fixed date, includes compensation for the interim rise in the cost of living.
There are convertible bonds, which carry the right of conversion into corporate
equities. (According to Negrea, 2005:88)
Bonds are desirable for the company because the interest rate is lower than in
most other types of borrowing. Also, interest paid is a tax deductible business
expense for the corporation. The disadvantage is that interest payments are ordinarily
made on bonds even when no profits are earned. For this reason, a smaller company
can seldom raise capital much capital by issuing bonds. (According to Ciucuc and
Tănăsescu, 2001: 137)
The new economy based on the Internet should be called the "nude economy"
because the Internet makes it more transparent and exposed. The potential for
electronic bonds trading seems to be less than in on-line futures and options. A reason
for this might be that individual investors aren't as interested in bonds as they are in
shares, because unlike some share prices, bond prices rarely double in 12 months.
Moreover, bonds are much less liquid than shares. Investors, such as insurance
companies that hold them to maturity, often buy them.
Even though the holders of bonds have lent money to the company, they have
no voice in the affairs of the business, nor do they share in profits or losses. However,
when the bond reaches maturity, the company must pay back the principal at its face
value.
2.2.3. Borrowing
Companies can also raise shot-term capital, usually working capital to finance
inventories, in a variety of ways, such as borrowing from lending institutions: banks,
insurance companies, and savings and loan establishments. The borrower must pay
34
the lender interest on the loan at a rate determined by competitive market forces. The
rate of interest charged by a lender can be influenced by the amount of funds in the
overall money supply available for loans. If money is scarce, interest rates will tend to
rise because companies seeking loans will be competing for funds. If plenty of money
is available for loans, the rates will tend to move downwards. (According to Ciucuc,
Tănăsescu, 2001:138)
If the corporate borrower finds that it needs to raise additional money, it can
refinance an existing loan. In this transaction the lender is essentially lending money
more money to its debtor. But if interest rates have gone up during the period, since
the original loan was secured, borrowers pay a higher rate in order to hold additional
funds. Even if the rate has gone down, the lender benefits by having increased in size
of its original loan at a lower rate of interest.
2.2.4. Using profits
Regarding some of the companies, Olea Ciuciuc and Eugenia Tănăsescu say
that they pay out most of their profits in the form in the form of dividends to their
shareholders. Investors buy into these companies because they want a high income on
a regular basis. But other corporations, called growth companies prefer to take most
of their profits and reinvest them in research and expansion. People who own such
shares accept a smaller dividend or none at all, if by rapid growth the shares increase
in price. (Ciuciuc, Tănăsescu, 2001:138)
A corporation prefers to keep a balance among these methods of raising
capital for expansion, frequently plowing back about half of the earnings into the
business and paying out other half as dividends.
2.3. Taxation of companies
Companies may be taxed on their incomes, property, or existence by various
jurisdictions. Some jurisdictions impose a tax based on the existence or equity
structure of the corporation. Other jurisdictions instead impose a tax based on stated
35
or computed capital, often including retained profits. However, most jurisdictions tax
corporations on their income. Generally, this tax is imposed at a specific rate or range
of rates on taxable income as defined within the system. Some systems have a
separate body of law or separate provisions relating to corporate taxation. In such
cases, the law may apply only to entities and not to individuals operating a trade.
Such laws may differentiate between broad types of income earned by corporations
and tax such types of income differently.
Many systems allow tax credits for specific items. Such direct reductions of
tax are commonly allowed for foreign taxes on the same income and for witholding
tax. Often these credits are the same as those available to individuals or for members
of flow through entities such as partnerships.
Both domestic and foreign companies are subject to taxation. Often, domestic
corporations are taxed on worldwide income while foreign corporations are taxed
only on income from sources within the jurisdiction.
Corporations are also subject to property tax, payroll tax, withholding tax,
excise tax, customs duties, value added tax, and other common taxes, generally in the
same manner as other taxpayers. These, however, are rarely referred to as corporate
tax.
2.3.1. Corporation tax
Corporation tax is the tax payable on a company’s income or gains at the
statutory rate. Corporate tax or company tax refers to a tax imposed on entities that
are taxed at the entity level in a particular jurisdiction. Such taxes may include
income or other taxes. The tax system impose an income tax at the entity level on
certain type(s) of entities (company or corporation). Many systems additionally tax
owners or members of those entities on dividends or other distributions by the entity
to the members. The tax generally is imposed on net taxable income. Net taxable
36
income for corporate tax is generally financial statement income with modifications,
and may be defined in great detail within the system. The rate of tax varies by
jurisdiction. The tax may have an alternative base, such as assets, payroll, or income
computed in an alternative manner. (According to Peterson, 1990)
Most income tax systems provide that certain types of corporate events are not
taxable transactions. These generally include events related to formation or
reorganization of the corporation. In addition, most systems provide specific rules for
taxation of the entity and/or its members upon winding up or dissolution of the entity.
William H. Peterson (1990) noted that in systems where financing costs are
allowed as reductions of the tax base (tax deductions), rules may apply that
differentiate between classes of member-provided financing. In such systems, items
characterized as interest may be deductible, subject to interest limitations, while items
characterized as dividends are not. Some systems limit deductions based on simple
formulas, such as a debt-to-equity ratio, while other systems have more complex
rules.
Most systems also tax company shareholders on distribution of earnings as
dividends. A few systems provide for partial integration of entity and member
taxation. This is often accomplished by "imputation systems" or franking credits. In
the past, mechanisms have existed for advance payment of member tax by
corporations, with such payment offsetting entity level tax.
Many systems impose a tax on particular corporate attributes. Such non-
income taxes may be based on capital stock issued or authorized, either by number of
shares or value, total equity, net capital, or other measures unique to corporations.
Corporations, like other entities, may be subject to withholding tax obligations
upon making certain varieties of payments to others. These obligations are generally
not the tax of the corporation, but the system may impose penalties on the corporation
or its officers or employees for failing to withhold and pay over such taxes.
2.3.2. Deductible expenses
37
An expense is tax deductible provided that it is incurred with the purpose of
generating taxable revenues including that which is provided by legal enactments in
force.
According to the Fiscal Code the following expenses are considered to be
incurred for the purpose of obtaining incomes:
expenses for labour protection and expenses effected for the prevention of
labor accidents and professional illness;
contributions for insurance against labor accidents and professional
illness, as well as professional risk insurance premiums;
advertising and publicity expenses effected in order to promote the firm,
products or services, based on a written contract, as well as costs associated with the
production of materials necessary for dissemination of publicity messages;
transport and accommodation expenses within the country and abroad
performed by employees and directors, provided that the company records profit
either in the current and/or the previous years;
subscription fees, dues and mandatory contributions, as regulated by legal
enactments in force, as well as contributions to the fund for negotiating the collective
labor agreement;
professional training expenses;
expenses for marketing, market research, promotion on existing or new
markets, participation in fairs and exhibitions, business missions, publication of own
informative materials;
research expenses as well as development expenses which are not
considered intangible assets;
expenses for the improvement of management, IT systems,
implementation, maintenance and improvement of quality management systems,
obtaining certifications of conformity with quality standards;
expenses for the protection of the environment and the conservation of
resources;
losses incurred in result of writing-off non-cashed receivables, in the
following cases: the bankruptcy procedure of the debtors has been closed based on
38
a court decision; the debtor has deceased and the receivable can not be cashed from
the successors; the debtor is dissolved in case of the limited liability company with a
sole shareholder or is liquidated without successor; the debtor encounters major
financial difficulties which affect its entire patrimony.
2.4. Insolvency, winding-up and bankruptcy
Insolvency represents the incapacity of a company to pay debts upon the date
when they become due in the ordinary course of business. (According to
www.ldoceonline.com).
The insolvency procedure is regulated in line with modern standards, based
on two significant commercial principles for any free market economy, as follows:
the attempt to recover the company through reorganization and/or commencement of
liquidation procedure based on a general or simplified insolvency procedure; the
organization of bankruptcy proceedings in a manner enabling all creditors to recover
their receivables.
The mandatory conditions, which need to be cumulatively met in order for the
creditors to commence the insolvency procedure against their debtor are:
the debts must exceed a certain sum, according to each legal system of
each country or 6 national average salaries for debts arisen from labor relations;
the debtor should face an impossibility to pay its debts;
the debtor should be in an impossibility to pay its mature debts with cash,
for over 30 days as of the maturity date. The liquidities shortage refers to the balance
in the debtor’s bank account and the available cash.
Should the conditions stated above be cumulatively met, the debtor itself is
compelled to file with the tribunal a motion for the commencement of the general or
simplified insolvency procedure.
The term winding up is one which encompasses both a creditors voluntary
liquidation and also a compulsory winding up. The creditors voluntary liquidation is
by far the most used corporate insolvency procedure. It is initiated by the directors,
who advise the shareholders (in a small company) usually the same people, that the
39
company is insolvent and that there is no possibility of saving the company and that it
needs to be closed down.
The creditors at a meeting are advised of the financial state of the company
and asked to vote to place it into liquidation. The creditors are allowed to question the
directors at the meeting as to the reasons for failure of the business. Sometimes this
can be distressing for a director especially when the creditors are persistent in their
questioning, but more often than not, creditors do not even attend in person at the
meeting and instead vote by proxy to liquidate the company. A professional should
advise directors who seek their advice to take steps to wind up their own businesses,
rather than sit and wait for a creditor to do it as it shows the liquidator that one is
complying with the obligations of a director.
A compulsory liquidation is begun by petition by a creditor and follows the
service of a statutory demand. A petition is issued out of the local county court in
which the registered office is situated, if it has bankruptcy jurisdiction. There are not
many of these issued every year and those that are, are usually started by the Inland
Revenue.
Bankruptcy is commonly referred to as "liquidation," meaning that the
business assets are liquidated, or sold, to pay the debts of the business. (According to
www.ldoceonline.com). In this type of bankruptcy, a trustee is appointed by the court
to oversee the process and make sure that creditors are treated equitably. The assets
are sold and divided between creditors, after the fees and costs of the trustee are paid.
Bankruptcy usually signifies the end of a business.
The bankruptcy process begins with a petition to the court, including financial
information and a list of creditors with the amounts owed to each.
If the court grants the petition, a bankruptcy trustee is appointed to oversee the
process. The trustee meets with creditors and attempts to work out arrangements for
repayment of debts.
The bankruptcy procedure becomes applicable in the following cases
according to M. Brookes and B. Horner (1999:263) :
the debtor expresses the wish to enter into the simplified procedure or does
not express the intention to reorganize its activity or, upon the creditor’s request to
40
commence the bankruptcy procedure, the debtor objects and its objection is rejected
by the syndic judge or none of the persons in charge proposes a reorganization plan or
the plan proposed is not accepted;
the debtor wishes to reorganize its activity, but does not propose a
reorganization plan or the plan proposed is not accepted..
There are several stages to be observed in a bankruptcy procedure starting
with the identification of debts and creditors, followed by the liquidation and the
distribution of the proceeds obtained from liquidation. The main stages of the
bankruptcy procedure are as follows:
lifting the debtor’s right to administer its property and sealing the debtor’s
assets, with a view to put together an inventory and to preserve the same;
appointing a temporary liquidator within the general procedure and the
confirmation, as liquidator, of the receiver within the simplified procedure;
establishing liabilities: drawing up the list of creditors, the list of debtor’s
assets and the profit-and-loss account for the year prior to the date of filing the
bankruptcy application, verifying the creditors’ claims and drawing up the list of
claims, settlement by the syndic judge of any objections, drawing up and posting the
final chart of the debtor’s liabilities; carrying out liquidation: sale of the debtor’s
assets by auction or by direct sale (wholesale or retail), payment of taxes, stamp
duties and all sale-related expenses, payment of secured creditors (the secured
creditors are such creditors who have mortgages, pledges, or retention rights on
debtor’s assets);
distributing the amounts resulted from liquidation: covering the expenses
related to the liquidation procedure, drawing up the final report and balance sheet by
the liquidator, settlement of the objections thereof and approval of the same by the
syndic judge and final distribution of the debtor’s funds;
closing the liquidation process, upon the liquidator’s request, conveyed in
a decision of the syndic judge.
In reorganization, creditors are encouraged to continue to work with the
company to keep it going. Also in reorganization, one or more committees may be
appointed to oversee the interests of the employees, shareholders, and creditor.
41
A liquidation bankruptcy process ends when all assets have been liquidated
and all creditors paid and the company no longer exists.
Useful Terminology
TERM DEFINITION ROMANIAN EQUIVALENT
bankruptcy Legal procedure for liquidating a business (or property owned by an individual) which cannot fully pay its debts out of its current assets.
faliment
bearer shares A stock certificate which is the property of whoever happens to be in possession of it at any given time.
acțiune la purtător
bond A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing.
creanță, ipotecă
borrower An individual, organization or company that is using funds, materials or services on credit
persoană care ia cu împrumut
borrowings Money owed by a business, country, or organization
împrumuturi
budget An itemized forecast of an individual's or company's income and expenses expected for some period in the future.
buget
clearing house A central collection place where banks exchange checks or drafts; participants maintain an account against which credits or debits are posted
oficiu de cliring
commodity exchange Open and organized marketplace where ownership titles to standardized quantities or volumes of certain commodities (at a specified price and to be delivered on a specified date) are traded by its members
bursă de mărfuri
compulsory liquidation Sale of the assets of a firm on court orders, issued at the request of the
lichidare obligatorie
42
firm's creditors. In a compulsory liquidation, the unsecured creditors generally have the right to choose and appoint the liquidator.
controller A company's chief accountant șef contabilconvertible bonds A corporate bond, usually a junior
debenture, that can be exchanged, at the option of the holder, for a specific number of shares of the company's preferred stock or common stock.
obligațiuni convertibile
corporate planning The process of drawing up detailed action plans to achieve an organization's goals and objectives, taking into account the resources of the organization and the environment within which it operates.
planificare pe termen lung a obiectivelor firmelor
corporate tax A tax that must be paid by a corporation based on the amount of profit generated.
impozit pe corporație
currency Money in any form when in actual use as a medium of exchange, especially circulating paper money.
valută
discharge of bankruptcy A court order terminating bankruptcy proceedings, usually relieving the debtor of his/her obligation.
absolvire de faliment
equity Ownership interest in a corporation in the form of common stock or preferred stock. It also refers to total assets minus total liabilities, in which case it is also referred to as shareholder's equity or net worth or book value.
capital al acționarilor într-o companie, acțiuni și alte titluri de valoare ale unei companii, capital propriu
equity ratio A financial ratio indicating the relative proportion of equity used to finance a company's assets.
fluctuation Change or variation in a quantity over time
fluctuație
franking credits A nominal unit of tax paid by companies paying tax in countries that have dividend imputation system
income Flow of cash or cash-equivalents received from work (wage or salary), capital (interest or profit), or land (rent).
venit
insolvency The situation where an entity cannot raise enough cash to meet its obligations, or to pay debts as they become due for payment
insolvabilitate
Inland Revenue Services Agency responsible for fisc
43
IRS administering and enforcing the Treasury Department's revenue laws, through the assessment and collection of taxes, determination of pension plan qualification, and related activities
investment Money committed or property acquired for future income.
investiție
investor Person whose primary objectives are preservation of the original investment (the principal), a steady income, and capital appreciation
investitor
lender Entity that advances cash to a borrower for a stated period and for a fixed or variable rate of interest, with or without a security other than the borrower's signatures
creditor
liquidation Winding up of a firm by selling off its free (un-pledged) assets to convert them into cash to pay the firm's unsecured creditors.
lichidare a unei întreprinderi
liquidity Measure of the extent to which a person or firm has cash to meet immediate and short-term obligations.
lichidități
marketing manager A manager whose primary task is to manage the marketing resources of a product or business.
manager de marketing
maturity of bonds Any length of time, although typical bond maturities range from one year to 30 years.
scadența obligațiunilor
money supply The total supply of money in circulation in a given country's economy at a given time
masă monetară
nude economy An economy that has become more transparent and exposed thanks to the Internet
trasparența economiei
ordinary shares Type of security that serves as an evidence of proportionate ownership, imparts proportionate voting rights, and gives its holder unlimited proportionate claim on the assets and income of the firm (after the claims of lenders, and other obligations, are satisfied).
acțiuni obișnuite
premium The amount by which a bond or stock sells above its par value.
obligațiuni cu prime, recompensă
par value nominal value shown on the principal side of a bill of exchange, currency, security (stock/share,
valoare nominală
44
bond), or other type of financial instrument.
preferred shares Capital stock which provides a specific dividend that is paid before any dividends are paid to common stock holders, and which takes precedence over common stock in the event of a liquidation.
acțiuni preferențiale
profit The positive gain from an investment or business operation after subtracting for all expenses.
profit
profitability Ability of a firm to generate net income on a consistent basis.
rentabilitate
redeemable shares Shares that may be redeemed at the option of the issuer and/or the shareholder.
acțiuni amortizabile/rambursabile
security An investment instrument, other than an insurance policy or fixed annuity, issued by a corporation, government, or other organization which offers evidence of debt or equity.
tiltlu de valoare
tax deduction An expense subtracted from adjusted gross income when calculating taxable income, such as for state and local taxes paid, charitable gifts, and certain types of interest payments.
reducere din venitul impozabil
treasurer The employee at a company who is responsible for the collection, maintenance, investment, and disbursement of funds.
administrator, gestionar
winding-up Method of dissolving a business by selling off its assets and satisfying the creditors from the proceeds of the sale.
lichidarea unei societăți
compulsory winding-up
Sale of the assets of a firm on court orders, issued at the request of the firm's creditors.
desființare obligatorie
voluntary winding-up
liquidation procedure initiated by the management of a firm following a special or extraordinary resolution to the effect.
desființare voluntară
45
3. Accounting and Financial Reports
3.1. Introduction
Accountancy is a branch of mathematical science useful in discovering the causes
of success and failure in business by recording, classifying, and summarizing in a
significant manner and in terms of money, transactions and events of financial character,
and interpreting the results thereof. The financial information applied to business entities
in accounting, bookkeeping and auditing divisions are further on provided to users such
as shareholders and managers.
Acording to Constantin Milea accounting is thousands of years old. The author
says that the earliest accounting records date back more than 7,000 years. Accounting
evolved, improving over the years and advancing as business advanced. Earlier forms of
accounting were inadequate for the problems created by a business entity involving
multiple investors, so double-entry bookkeeping first emerged in northern Italy in the
14th century, where trading ventures began to require more capital than a single
individual was able to invest. (Milea, 1999:45)
The development of joint stock companies created wider audiences for
accountants, as investors without firsthand knowledge of their operations relied on them
to provide the requisite information. This development resulted in a split of accounting
systems for internal (i.e. management accounting) and external (i.e. financial accounting)
46
purposes, and subsequently also in accounting and disclosure regulations and a growing
need for independent attestation of external accounts by auditors.
3.2. The Accounting department
The Accounting department is referred to as the core of a business as every act or
transaction of the company is entried in its books. Not only do letters telegrams come
into this department but the cheques and bills are also received and paid out. The
permanent flow of incoming and outgoing goods can be noticed in the invoices and
advice notes it dealt with.
Also known as the Ledger Department (according to Milea, 1999), it keeps books
where information referring to every legal or natural person from whom goods are bought
or to whom they are sold is stored. The supplier is credited for his commodity in the
Purchases Ledger while the customer is debited for the goods sold to him in the Sales
Ledger. These two books comprising personal accounts are known as Personal Ledgers
as distinct from the Impersonal Ledgers holding accounts for goods, capital, plant,
interest, rent, depreciation, amortisation, profits and loss, etc.
In some respect, the Ledger is a more complete picture of the company then the
Journal is. Each year the Journal indicates what happened or changed during that year,
while the Ledger contains not only the current year’s events but it also tells the
company’s situation at the beginning of the new year. The Ledger accounts start the year
with balances from the Balance Sheet of the previous year-end. The changes that occur
are recorded as Journal entries and are used to update the Ledger accounts. Every time a
Journal entry is made, the amount in at least two accounts is changed in order to keep the
basic equation of accounting in balance.
A basic principle of modern bookkeeping is the double entry (i.e. for every debit
in one account, another account must be credited and vice versa) referring that it is not
possible to change one number in an equation without changing at least another one. It is
only necessary to calculate the control sheets on which all the entries for the day were
made and, if the total of the debit columns equals the total of the credit ones, the head
bookkeeper is sure that all his postings are correct. Any possible error in posting is easily
47
traced by comparing the original documents with the Journal Sheet. (According to Milea,
1999)
A normal accounting practice for revenues and expenses is the accrual
accounting. As distinct from the cash accounting which accounts only for cash receipts
and payments, the accrual accounting applies for revenues in the period of in which they
are earned and for expanses in the period in which they are incurred. A transaction is
accrued even if the cash has not been received yet.
The Ledger Department not only keeps the books but is also responsible for the
collection of accounts. The careful management of accounts results in both the prevention
of losses and punctual return of the capital giving the firm its use for new transaction.
The earning capacity of the money used by the firm depends greatly on its turnover. The
prompt receiving of money by a firm facilitates the prompt payment of its own debts and
enables it to benefit by the highest possible cash discount for prompt payment.
3.3. Financial accounting
As a main area of accounting, the financial accounting is responsible for the
recording of business in monetary values, the accounts of the company and their
presentation in quarterly or annual statements. It is designed to record the financial
history of a business entity and report historical data accordingly, therefore it looks
backward if there are different ways of recording transactions, calculating profits or
losses, or giving values to assets and liabilities in order to provide an accurate view of the
company’s finance, to make entries in a single monetary unit, to consider business as
being continuous, to report the financial information periodically, and to apply the
principle of the historical cost and state revenues only after the goods were sold and
services accomplished.
The fundamental need for financial accounting is to reduce principal-agent
problem by measuring and monitoring agents' performance and reporting the results to
interested users. All accounts and financial statements should be presented in conformity
with General Accepted Accounting Principles (GAAP), (According to Marcheteau &co,
2005:478) :
48
Going concern. True basic assumption that the concern has no intention or
obligation to liquidate or curtail operations.
True and fair view, or air presentation. The word ‘fair’ goes beyond the
simple notion of accuracy since accounts may be accurate while concealing some
facts or failing to disclose some aspects of a firm’s economic and financial position.
Prudence. Caution and circumspection, so that there should not be any
extrapolation or over – or under – estimation of results. In particular, only profits
realised at the date of financial statements should be included, and losses which have
arisen, or are likely to arise in respect of the financial year concerned, should be
mentioned.
Consistency. This implies that similar operations should be dealt with in
the same manner (consistency) from fiscal year to fiscal year.
Matching principle. Charges and revenues must be correctly matched with
the accounting periods to which they belong.
Historical Cost. Recording assets in the books at their initial cost, at the
time of acquisition, as opposed to replacement cost.
Accrual basis. This means taking into account income and expenses when
earned and incurred (commitments) regardless of when cash is actually received or
disbursed.
Materiality. An item should be regarded as material if there is reason to
believe that knowledge of it would influence the decision of an informed investor.
In the event of any failure to meet the above principles, the reasons for it and its
effects on the accounts must be set out clearly in the notes to the financial statement.
Given the multiplication of international operations, mergers, takeovers and
consolidations involving companies of different nationalities – and the interlocking
structure of multinationals – a strong movement towards the homogenization of
accounting practice appears, and the profession is active in promoting this trend through
its international norm- and standard-setting institutes.
3.3.1. The Chart of Accounts
49
The chart of accounts or accounting plan, as a systematic method of accounting,
comprises a limited number of accounts divided into classes, sub-classes and subsidiary
accounts. It differs from one country to another due to the accounting tradition, practice,
legislation and macro economic considerations. The basic classification of accounts
commonly covers four major categories of transactions including financing, investments,
revenues and expanses.
In the UK, according to Constantin Milea (1999), each business is allowed to
divide its own accounting system and the model chart of accounts can be modified in
accordance with each company’s financial requirements. The most common chart of
accounts in the UK refers to five classes comprising assets, liabilities, shareholder’s
equity, revenues and expanses which can be divided into sub-classes and subsidiary
accounts. For example, Class 1 referring to assets has three sub-class accounts: Current
Assets (11), Fixed Assets (12) and Deferred Assets (13), while the sub-class (11) has
subsidiary accounts such as Petty Cash (1101), Cash in Bank (1102), Creditors or
Accounts Payable (1105) and Stocks or Inventory (1107).
In Latin Countries the accounting rules, regulations and decree laws are imposed
by governments rather than professional bodies. The French accounting plan, also used in
Romania comprises seven classes:
Class 1 of Capital Accounts Clasa 1 Conturi de CapitaluriCapital and reserves (10), 10 Capital și rezervăProfit or loss brought forward (11 11 Profit sau pierderi evidențiate în devansProfit or loss for the financial year (12) 12 Rezultatele exercițiuluiInvestment grants (13) 13 Subvenții pentru investițiiProvisions for tax purposes (14) 14 Provizioane reglementateProvisions for liabilities and charges (15) 15 Provizioane pentru riscuri și cheltuieliLoans and similar creditors (16) 16 Împrumuturi și datorii asimilateDebts related to participating interests (17) 17 Datorii lagate de participațiiDebts related to participating interests (17) 18 Conturi pentru filiale și tranzacții între
unități și subunitățiClass 2 of Fixed Assets Clasa 2 Conturi de ImobilizăriIntangible assets (20) 20 Imobilizări necorporaleTangible assets (21 21 Imobilizări corporaleFixed assets under concession (22) 22 ConcesiuniFixed assets in course of construction (23) 23 Imobilizări în cursParticipating interests and debts relating there to (26)
26 Dobânzi
Other financial assets (27) 27 Alte titluri imobilizate
50
Provisions for depreciation of fixed assets (28)
28 Amortizări privind imobilizările
Provisions for loss in value of fixed assets (29).
29 Provizioane pentru deprecierea imobilizărilor
Class 3 of Stock and Work-in-Progress Clasa 3 Conturi de Stocuri și Producție în curs de execuție
Raw materials (31) 31 Materii primeOther consumables (32) 32 Alte consumabileWork-in-progress goods (33) 33 Produse în curs de execuțieWork-in-progress services (34) 34 Lucrări și servicii în curs de excuțieFinished goods (35) 35 Produse finiteGoods for resale (37) 37 Mărfuri în custodie sau consignație la
terțiProvisions for loss in value of stocks and work-in-progress (39)
39 Provizioane pentru deprecierea stocurilor și producției în curs de execuție
Class 4 of Personal Accounts Clasa 4 Conturi de terțiSuppliers and related accounts (40) 40 Furnizori și conturi asimilateTrade debtors and related accounts (41), 41 Clienți și conturi asimilate Employees and related accounts (42) 42 Personal și conturi asimilateSocial protection and similar accounts (43) 43 Asigurări sociale, protecția socială și
conturi asimilateGovernment and other public bodies (44) 44 Bugetul statutului, fonduri speciale și
fonduri asimilateGroup companies and proprietors (45) 45 Grup și asociațiSundry debtors and creditors (46) 46 Debitori și creditori diverșiSuspense accounts (47) 47 Conturi de regularizare și asimilatePrepayments and accruals (48) 48 Cheltuieli și venituri înregistrate în
avansProvisions for loss in value on personal accounts (49)
49 Provizioane pentru deprecierea creanțelor
Class 5 of Financial Accounts Clasa 5 Conturi de TrezorerieTrade investments (50) 50 Titluri de plasamentBanks, financial and similar institutions (51)
51 Conturi bancare
Cash (53) 53 Casa Imprest accounts and credits (54) 54 Avansuri de casă și acreditiveInternal Transfers (58) 58 Viramente interneProvisions for loss in value on financial accounts (59)
59 Provizioane pentru deprecierea conturilor de trezorerie
Class 6 of Expense Accounts Clasa 6 Conturi de CheltuieliPurchases (60) 60 Cheltuieli cu achizițiileExternal Services (61) 61 Cheltuieli cu lucrările și serviciile
executate de terțiOther external services (62) 62 Cheltuieli cu alte servicii executate de
terți
51
Taxes, direct and indirect (63) 63 Cheltuieli cu impozitele, taxele și vărsămintele asimilate
Personnel costs (64), 64 Cheltuieli cu personalulOther operating charges (65) 65 Alte cheltuieli de exploatareFinancial costs (66), 66 Cheltuieli financiareExtraordinary charges (67), 67 Cheltuieli excepționaleDepreciation, amortisation, transfers to provisions (68)
68 Cheltuieli cu amortizările și provizioanele
Profit sharing by employees, taxes on profits and similar items (69)
69 Cheltuieli cu impozitele pe profit
Class 7 of Revenue Accounts Clasa 7 Conturi de VenituriSales of goods and services (70) 70 Venituri din vănzări de produse,
mărfuri, servicii prestate și din alte activități
Stock variation (71) 71 Venituri din producția stocatăWork from own purposes and capitalised (72)
72 Venituri capitalizate din activitatea de exploatare
Net income recognised on long-term contracts (73)
73 Venituri nete din contrecate pe termen lung
Operating subsidies (74) 74 Venituri din subvenții de exploatare Other operating income (75) 75 Alte venituri din exploatareFinancial income (76) 76 Venituri financiareExtraordinary income (77) 77 Venituri excepționaleDepreciation and provisions written back (78)
78 Venituri din amortizări și provizioane
Charges transferred (79) 79 Venituri din cheltuieli
3.4. Management Accounting
Management accounting may be defined as a process of accumulation, analysis
and communication of both financial and operating data used by the management to plan,
evaluate, and control within the organisation to assure accountability for its resources.
The management accounting is an integral part of the management process and,
consequently, the information that it provides is used for controlling the current activities
of the company; for planning its future strategies, optimising the use of resources; for
valuing performance, reducing subjectivity in the decision making process and for
improving both the internal and external communication.
Constantin Milea mentions that the principles necessary to create the framework
within the management accounting practices and techniques applied are: accountability,
52
controllability, reliability, interdependency and relevancy. (Milea, 1999:46) Therefore,
Management Accounting is important not only for the decision making process, but it
also provides the framework for the management process. Unlike financial accounting,
the management accounting makes use of the management accounts belonging to Class 9
in the Chart of Accounts, namely Internal Settlements (90), Calculation Accounts (92)
and Production Costs (93).
In contrast to financial accountancy information, management accounting
information is designed and for use of managers within the organization, whereas
financial accounting information is designed for use by shareholders and creditors. It
provides is confidential rather than public oriented and is rather forward-looking, than
historical.
Consistent with other roles in today's corporation, management accountants have
a dual reporting relationship. As a strategic partner and provider of decision based
financial and operational information, management accountants are responsible for
managing the business team and at the same time having to report relationships and
responsibilities to the corporation's finance organization.
The activities management accountants provide inclusive of forecasting and
planning, performing variance analysis, reviewing and monitoring costs inherent in the
business are ones that have dual accountability to both finance and the business team.
Examples of tasks where accountability may be more meaningful to the business
management team than the corporate finance department are the development of new
product costing, operations research, business driver metrics, sales management
scorecarding, and client profitability analysis. (According to Milea, 1999:47)
Therefore, the preparation of certain financial reports, reconciliations of the
financial data to source systems, risk and regulatory reporting will be more useful to the
corporate finance team as they are charged with aggregating certain financial information
from all segments of the corporation. One widely held view of the progression of the
accounting and finance career path is that financial accounting is a stepping stone to
management accounting. Consistent with the notion of value creation, management
accountants help drive the success of the business while strict financial accounting is
more of a compliance and historical endeavor.
53
3.5. Financial reports
Movements of goods, services and economic means constitute economic flows
which are analysed in terms of sources and applications of funds. A picture of how funds
are obtained and how they are applied in the business, thus showing the strengths and
weaknesses of the internal financial situation, is given by the Sources and Applications of
Funds Statement. According to Constantin Milea the concepts of Sources and
Applications should meet two conditions. Firstly all sources are known as liabilities
which are divided into: permanent sources, the capital contributed by the owner operator,
partners or shareholders and profit made by the firm, and temporary sources, credit
extended by suppliers, creditors and bankers. Secondly, all applicants of funds are known
as assets which are analysed in terms of: permanent applications land, buildings, long
term investments, inventories, and temporary applications, accounts receivable, short-
term investments, cash. (Milea, 1999:55)
The objective of financial statements is to provide information about the financial
position, performance and changes in financial position of an enterprise that is useful to a
wide range of users in making economic decisions. Financial statements should be
understandable, relevant, reliable and comparable. Reported assets, liabilities and equity
are directly related to an organization's financial position. Reported income and expenses
are directly related to an organization's financial performance.
Financial statements are intended to be understandable by readers who have a
reasonable knowledge of business and economic activities and may be used by those for
different purposes. Owners and managers require financial statements to make important
business decisions that affect its continued operations. Financial analysis is then
performed on these statements to provide management with a more detailed
understanding of the figures. These statements are also used as part of management's
annual report to the shareholders.
Employees also need these reports in making collective bargaining agreements
with the management, in the case of labor unions or for individuals in discussing their
compensation, promotion and rankings. Prospective investors make use of financial
54
statements to assess the viability of investing in a business. Financial analyses are often
used by investors and are prepared by financial analysts, thus providing them with the
basis for making investment decisions.
Financial institutions (banks and other lending companies) use them to decide
whether to grant a company with fresh working capital or extend debt securities (such as
a long-term bank loan or debentures) to finance expansion and other significant
expenditures.
Government entities (tax authorities) need financial statements to ascertain the
propriety and accuracy of taxes and other duties declared and paid by a company.
Vendors who extend credit to a business require financial statements to assess the
creditworthiness of the business. Media and the general public are also interested in
financial statements for a variety of reasons.
There are three basic reports that the business organizes on a regular basis: the
income statement, the statement of capital for sole proprietorships and partnerships or the
retained earnings statement for corporations and the balance sheet.
3.5.1 Profit and Loss Account
According to Consatantin Milea (1999:56) it represents a statement of the
company’s business activity and the expanses relative to that business for a certain
financial period. It indicates the sales figure achieved less the expenses incurred in
obtaining the sales (production costs, administrative expenses, depreciation, etc). It also
shows the gains or losses from the company’s own long and short term investments and
the sale of company assets. The tax due to be paid on the net result (sales and other gains
less expanses and losses) are specified in the statement. If dividends are to be paid to
stockholders from the profits earned, the sum is indicated as a deduction. If profits are to
be transferred to retained earnings it is also mentioned in the statement. After all
deductions have been taken, the net profit/loss figure or bottom line is transferred to the
balance sheet.
3.5.2 Statement of Capital or Retained Earnings
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a) Sole proprietorship – the proprietorship’s capital account represents his
ownership in the assets of the business. The net income the business earns belongs to the
owner who has the right to withdraw the profits that the business earns or to reinvest the
income in the business. If the letter approach is chosen, the profits are added to the
proprietor’s capital record. In the case where the proprietor withdraws from the company
more than the business earns, the result is a decrease in the proprietor’s capital. The
statement of capital shows the changes that take place in the proprietor’s capital over a
period of time.
b) Partnership – Although the statement of capital for a partnership is prepared in
the same manner as for a proprietorship, the accountant must show changes in capital for
each partner.
c) Corporations – since the ownership of a corporation is in the form of shares of
stock, no statement of capital is prepared. Income earned by a corporation and dividends
paid are reflected in an account entitled retained earnings which register all the changes
from the beginning of the accounting period to the end of the accounting period.
3.5.3 The Balance Sheet
It is an important report for any company as it shows its financial position on a
particular date providing a detailed listing of three categories: the various assets of the
business, its liabilities and the capital section.
In financial accounting, assets are economic resources. Anything tangible or
intangible that is capable of being owned or controlled to produce value and that is held
to have positive economic value is considered an asset.(According to Milea, 1999:60)
Assets represent ownership of value that can be converted into cash, although
cash itself is also considered an asset. The balance sheet of a firm records the monetary
value of the assets owned by the firm. Two major asset classes are tangible assets and
intangible assets. Tangible assets contain various subclasses, including current assets and
fixed assets.
3.5.3.1. Assets
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a) Current Assets include cash and all the assets that can be turned into cash in the
reasonably near future, usually within a year from the date of the balance sheet.
(According to Marcheteau & co, 2005:481)
Cash which consists of bills and silver in the till (petty cash fund) and
money on deposit in the bank.
Marketable Securities which represent temporary investment of excess or
idle cash which is not needed immediately in stocks, bonds, and Government
securities for the purpose of earning dividends and interest.
Accounts Receivable which are amounts not yet collected from customers
who are usually given 30, 60 or 90 days to pay their debts.
Inventories which become accounts receivables when sold.
b) Fixed Assets referred to as property, plant and equipment represent those assets
which are not intended for sale, but used to manufacture a product, display it, warehouse
it and transport it. The method for valuation is cost less accumulated depreciation based
on cost to the date of the balance sheet. According to Marcheteau & co (2005), these
assets are described from the point of view of:
Depreciation which is the decline in useful value of a fixed asset due to
destruction as a consequence of use and passage of time, or to obsolescence which
makes the present equipment out of date. However land is not subject to depreciation
whose cost should remain unchanged from year to year.
Net property, Plant and Equipment is the valuation for balance sheet
purposes of the investment in fixed assets. It consists of the cost of the variation
assets diminished by the depreciation accumulated to date. Prepayments represent
payments in advance for insurances or rentals and Deferred Charges represent a type
of asset similar to prepayments.
c) Intangible assets may be defined as assets that have no physical existence but
with substantial value to the company, such as leasehold, copyright, patent, licence or
goodwill.
3.5.3.2. Liabilities
a) Current Liabilities refer to the debts that fall due within the year to come.
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Accounts payable stand for the amounts that the company owes to its regular business
creditors as well as salaries, interests for the funds borrowed from banks, fees, insurance
premiums etc. Income Tax Payable is the tax due to the Inland Revenue.
b) Long term liabilities represent debts due after one year from the date of the
financial report such as mortgage bonds.
3.5.3.3. Shareholder’s Equity
It represents the total equity interest that the shareholders have in the corporation,
being separated into three categories, according to Marcheteau & co.(2005:482): capital
stock representing the owner’s shares in the company, preferred stock which refer to
those shares that have some preference over other shares such as dividends or in
distribution of assets in case of liquidation and common stock.
3.6 The Audit
After the formation of a company, a major step is the appointment of an auditor or
auditors, sometimes a reputable auditing firm to hold office until the next annual meeting.
The regular examination of a company’s books and accounts is a legal obligation and, for
the carrying out of the audit, the auditors are responsible for the shareholders by whom
they are appointed.
The general definition of an audit is an evaluation of a person, organization,
system, process, enterprise, project or product, as cited by
www.businessdictionary.com . The term most commonly refers to audits in accounting,
but similar concepts also exist in project management, quality management, and for
energy conservation.
Every auditor is granted the right of access to the books and accounts of the
company at all times and can request all the information that he feels necessary for the
carrying out of his activity as his work is a legally independent examination.
When the Balance Sheet and Profit and loss account are presented at the Annual
General Meeting they have to contain the auditor’s report certifying that they are in
agreement with the books of account, comply with the regulations and represent a correct
view of the company’s business.
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The Auditor’s certificate assures shareholders, partners and creditors of the
accuracy of book accounts, being also a guarantee against possible errors and a deterrent
against fraud. In many companies, especially in medium or small ones, an auditor can
prepare the final accounts and make the Balance Sheet, situation where he acts as an
accountant of the company and not in his capacity as Auditor under Statute. (According
to Milea, 1999)
Audits are performed to ascertain the validity and reliability of information; also
to provide an assessment of a system's internal control. The goal of an audit is to express
an opinion on the person, organization or system in question, under evaluation based on
work done on a test basis. Due to practical constraints, an audit seeks to provide only
reasonable assurance that the statements are free from material error. Hence, statistical
sampling is often adopted in audits. In the case of financial audits, a set of financial
statements are said to be true and fair when they are free of material misstatements - a
concept influenced by both quantitative and qualitative factors.
Audit is vital for accounting. Traditionally, audits were mainly associated with
gaining information about financial systems and the financial records of a company or a
businness.(According to Milea, 1999) However, recent auditing has begun to include
other information about the system, such as information about security risks, information
systems performance, and environmental performance. As a result, there are now
professionals conducting security and environmental audits.
In Cost Accounting, it is a process for verifying the cost of manufacture or
production of any article, on the basis of accounts. In simple words the term cost audit
means a systematic and accurate verification of the cost accounts and records and
checking of adherence to the objectives of the cost accounting.
Such systems must adhere to generally accepted standards set by governing
bodies regulating businesses; these standards simply provide assurance for third parties or
external users that such statements present a company's financial condition and results of
operations fairly. As a general rule, audits should always be an independent evaluation
that will include some degree of quantitative and qualitative analysis.
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3.6.1. Types of auditors
Auditors of financial statements can be classified into two categories:
a) External auditor is an independent public accounting firm engaged by the client
subject to the audit, to express an opinion on whether the company's financial statements
are free of material misstatements, whether due to fraud or error. For publicly-traded
companies, external auditors may also be required to express an opinion over the
effectiveness of internal controls over financial reporting, according to Milea (1999).
Auditors may also be engaged to perform other agreed-upon procedures, related
or unrelated to financial statements. Most importantly, external auditors, though engaged
and paid by the company being audited, are regarded as independent auditors.
b) Internal auditors of internal control are employed by the organization they
audit. Internal auditors perform various audit procedures, primarily related to those over
the effectiveness of the company's internal controls over financial reporting. Internal
auditors of publicly-traded companies are required to report directly to the board of
directors, or a sub-committee of the board of directors, and not to management, in order
to reduce the risk that internal auditors will be pressured to produce favorable
assessments.
c) Consultant auditors are external personnel contracted by the firm to perform an
audit following the firm's auditing standards. This differs from the external auditor, who
follows their own auditing standards. The level of independence is therefore somewhere
between the internal auditor and the external auditor. The consultant auditor may work
independently, or as part of the audit team that includes internal auditors. Consultant
auditors are used when the firm lacks sufficient expertise to audit certain areas, or simply
for staff augmentation when staff are not available.
d) Quality auditors may be consultants or employed by the organization to verify
the effectiveness of a quality management system.These type of auditors are essential to
verify the existence of objective evidence of processes, to assess how successfully
processes have been implemented, for judging the effectiveness of achieving any defined
target levels, providing evidence concerning reduction and elimination of problem areas
and are a hands-on management tool for achieving continual improvement in an
organization. (According to Milea, 1999) To benefit the organization, quality auditing
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should not only report non-conformances and corrective actions but also highlight areas
of good practice. In this way, other departments may share information and amend their
working practices as a result, also enhancing continual improvement.
None of the business organization can operate without accountancy. Either in case
of small business, , or in case of large businesses, accounting is a vital element as it is
responsible with recording the way a business has grown and, after analyzing figures,
suggesting the way it should go in the future.
Useful TerminologyTERM DEFINITION ROMANIAN
EQUIVALENTaccount A record of financial transactions for an
asset or individual, such as at a bank, brokerage, credit card company, or retail store.
cont, calcul
accountant/ bookkeeper clerk in charge recording business transactions and entering them in the accounts book
contabil
accrue Accumulate or increase a efectua o în-registrare contabilă tranzitorie
accruals Short-term liabilities (such as interest, taxes, utility charges, wages) which continually occur during an accounting period but are not supported by an invoice or a written demand for payment.
cumulări
Accruals basis System of accounting based on 'accrual principal' under which revenue is recognized (recorded) when earned, and expenses are recognized when incurred.
Principii de anualitate, contabilitate bazată pe angajamente
appraisal Evaluation by a qualified appraiser to (1) assess the current market value of a property, (2) estimate the extent of damage to an insured property and cost of repairs, or (3) determine if a total loss occurred
estimare
asset(s) Something valuable that an entity owns, benefits from, or has use of, in generating income. In accounting, an asset is something an entity has acquired or purchased, and which has money value (its cost, book value, market value, or residual value).
bun/ active
assessment an amount determined as payable; evaluation
taxă/evaluare
61
at par A bond or preferred stock which is selling at a price equal its face (or par) value.
la valoare nominală
audit Systematic examination and verification of a firm's books of account, transaction records, other relevant documents, and physical inspection of inventory by qualified accountants
audit
auditor An individual qualified to conduct audits. auditor, cenzorbalance Amount available in an account for
withdrawal or use. Computed by summing up all cleared or credited deposits, and deducting all withdrawals, debits, and service charges.
situația contului, balanță
balance sheet Condensed statement that shows the financial position of an entity on a specified date (usually the last day of an accounting period).
bilanț contabil
base year Year used as the beginning or the reference year for constructing an index, and which is usually assigned an arbitrary value of 100
anul de bază
Book of accounts A book in which accounts are kept Registru de conturiCash flow tern used in capital budgeting
representing the cash the cash coming in less the cash going out during a given period.
Fluxul numeralului
Cash inflow Money received by a firm as a result of its operating activities, investment activities, and financing activities.
Intrare de numerar
Cash outflowMoney paid out by a firm as a result of its operating activities, investment activities, and financing activities.
Ieșire de numerar
consistency principle Basic accounting concept that once an accounting method is adopted, it should be followed consistently from one accounting period to the next.
Principiul consecvenței
current assets Accounts receivables, inventory, work in process, cash, etc., that are constantly flowing in and out of a firm in the normal course of its business, as cash is converted into goods and then back into cash
active curente
current ratio ratio of current assets to current liabilities
raportul dintre activele curente și pasivele curente
debited To enter (a sum) on the left-hand side of an account or accounting ledger.To charge with a debit
debitat
depreciation Diminishment in the economic potential of an asset over its productive or useful life. the apportionment of the cost of an
depreciere, amortizare
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intangible asset as an operational cost over the asset's estimated useful life
financial accounting Field of accounting that treats money as a means of measuring economic performance instead of (as in cost accounting) as a factor of production. It encompasses the entire system of monitoring and control of money as it flows in and out of the firm as assets and liabilities, and revenues and expenses
contabilitate financiară
financial year Accounting period that can start on any day of a calendar year but has twelve consecutive months at the end of which account books are closed, profit or loss is computed, and financial reports are prepared for filing.
an finaciar
fixed assets Land, buildings, equipment, machinery, vehicles, leasehold improvements, and other such items. Fixed assets are not consumed or sold during the normal course of a business but their owner uses them to carry on its operations.
bunuri imobile
gross Aggregate amount prior to any deduction or discount
brut
going concern Currently operating business that is expected to continue to function as such and remain viable in the foreseeable future
continuarea exploatării
income tax Annual charge levied on both earned income (wages, salaries, commission) and unearned income (dividends, interest, rents).
taxa pe venit
incremental cash flow Change in the cash flow of an operation or project that results from an investment.
flux sporit de numerar
incremental costs Increase or decrease in the total cost of a production-run, from making one additional unit of an item.
creșterea costurilor
intangible assets Reputation, name recognition, and intellectual property such as knowledge and know how.
active necorporale
journal entry Recording of financial data (taken usually from a journal voucher) pertaining to a business transaction in a journal such that the debits equal credits.
înregistrare
ledger Collection of an entire group of similar accounts in double-entry bookkeeping.
registru contabil principal
levy Impose or collect an amount (such as a tax) by compulsion or legal authority.
impozit, taxă
lump sum Single large amount; not consisting of several smaller amounts or installments.
sumă totală, globală
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management accounting Process of preparing management accounts that provide accurate and timely key financial and statistical information required by managers to make day-to-day and short-term decisions
contabilitate de gestiune
marginal cost Increase or decrease in the total cost of a production-run, from making one additional unit of an item.
cost marginal
maturity Time to completion of a project or program, or the period for which a contractual agreement, financial instrument, guaranty, insurance policy, loan, or offer is issued or is in force
scadență
matching principle Fundamental concept of accrual basis accounting that offsets revenue against expenses on the basis of their cause-and-effect relationship.
principiul amortizării costurilor și veniturilor din aceeași perioadă
materiality Measure of the estimated effect that the presence or absence of an item of information may have on the accuracy or validity of a statement.
relevanță
monetary unit Currency unit issued as a coin or banknote, and used as a standard unit of value and a unit of account.
unitate monetară
net present valueNPV
Difference between the present value (PV) of the future cash flows from an investment and the amount of investment
valoare prezentă netă
net profit Total revenue in an accounting period less all expenses during the same period
profit net
outlay Total cost or expenditure required or incurred in acquiring an asset, achieving an objective, or executing a decision.
cheltuieli
overheads Cost or expense that relates to an operation or the firm as a whole, does not become an integral part of a good or service and cannot be applied or traced to any specific unit of output
procentajul cheltuielilor din totalul cifrei de afaceri
retained earnings/profits Profits generated by a firm that are not distributed to stockholders (shareholders) as dividends but are either reinvested in the business or kept as a reserve for specific objectives (such as to pay off a debt or purchase a capital asset).
câștiguri/profituri nerepartizate
return of capital Inflow of cash resulting from depreciation, sale of capital assets, tax savings, or any transaction not related to the accumulated or retained earnings.
rentabilitate financiară, a capitalului
return on assets Ratio measuring the operating profitability of a (non-financial) firm,
rentabilitatea economică
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expressed as a percentage of the operating assets
subsidy Economic benefit (such as a tax allowance or duty rebate) or financial aid (such as a cash grant or soft loan) provided by a government to support a desirable activity, keep prices of staples low, maintain the income of the producers of critical or strategic products, maintain employment levels, or induce investment to reduce unemployment.
subvenție
tangible assets Cash, equipment, machinery, plant, property anything that has long-term physical existence or is acquired for use in the operations of the business and not for sale to customers
active corporale
value added tax (VAT) Indirect tax on the domestic consumption of goods and services
taxa pe valoare adăugatăTVA
wages Cost of using labor as opposed to cost of using capital or land.
salariu
4. Banking Services and Means of Payment
4.1. Introduction
For the existence of business entities, banks and the services they provide are a
major element in the development and high performance of the business’ activity. Not
only as a funding possibility by the granting of loans, are banks vital, but also by the
transactions between companies they facilitate. On these grounds, in this chapter I will
talk about banks and their importance for the existence of the business environment.
Banks can be defined as establishment authorized by a government to accept
deposits, pay interest, clear chequess, make loans, act as an intermediary in financial
transactions, and provide other financial services to its customers, as cited by
www.businessdictionary.com
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According to M. Marcheteu & co. (2005:250) banks date back to the days when
religious people lent their assets, i.e. perishable goods, to the people who needed them in
return for a promise to be paid back the goods under consideration along with a slight
increase in the amount lent, a fee of sorts to pay for the service provided. People used to
think that their belongings would be safest in temples or shrines, that is why religious
people used to collect deposits from the public. Today, the banking sector still performs
such tasks and bankers have now become key participants in the economic activity.
4.2. Types of Banks
For the existence of business entities banks are vital. In accordance with the type
of customers they cater for, G. Lipscombe (1990) mentions the following types of banks:
Commercial banks are the privately-owned institutions seeking for profit which
develop services according to the general public’ needs, such as the use of a cheque book,
the provision of credit cards, etc. These banks accept funds from customers, have
extensive branch networks and are major participants in the clearing system, settling of
banks between banks. Regarding the financial profitability for the economy, they inject
large amounts of money through cheques, payments made by direct debit, standing order
or credit cards. Concerning their activity related to companies, commercial banks fill
firm’s short-term needs by providing businesses with loans, consumer and instalment
credit, mortgage loans and other more specialized services.
Central Banks which have as a main responsibility to implement the country’s
monetary policy, as they are the only banks allowed to issue banknotes. A Central Bank
is the Government’s banker, the government may borrow from the Bank when short of
money, but it is also in charge of keeping the country’s gold reserves. Central Banks
represent the Bankers’ Bank as all the other banks have large sums deposited here. They
are crucial to the country as they regulate the flow of capital into and out of the country,
the amount of credit available in the country, all other financial and commercial
institutions being influenced by the Bank Rate settled by the Central Bank.
Investment Banks or Merchant Banks are concerned with sophisticated, innovative
transactions that most often involve corporate customers. They participate in large pools
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of capital and financial syndications, often working together to provide their clients with
large-scale financing, which may include international credit facilities. They provide
corporate finance services to companies: mergers and acquisitions, takeover bids,
floatation on the Stock exchange, medium-term loans, export finance, leasing etc.
Savings Banks are the institutions which receive savings accounts and pay interest to
the depositors. Generally, the rates of interest vary in relation to the length of the notice
of withdrawal.
Building Societies (UK) which obtain funds from private investors by issuing
shares, taking deposits, and lending money for the purchase of commercial premises. The
loan is secured by mortgage. Even though they are a relatively minor factor in long-term
industrial finance, they have provided many small businesses with capital.
Savings and Loan Associations (US) which are cooperative associations formed
under federal or state law, which solicit savings in the form of shares, invest their funds
in mortgages and permit deposits in the withdrawal from shareholders’ accounts similar
to those allowed for savings accounts in banks.
Hybrid Financial Institutions are finance companies or credit institutions which
facilitate business transactions between buyer and seller by directly financing the buyer.
Credit Unions representing associations formed by trade groups which manage and
invest large pools of capital contributed by its members. The members of a credit union
may also save there for their retirement and take out loans at competitive interest rates.
Financial Services Companies which exist in various forms and offer a wide range
of services that may include insurance programs, investment and brokerage services,
mutual funds and tax-shelters.
4.3. Banking Services
Banks provide a wide range of services to their clients, either they are individuals
or companies, such as: acceptance of deposits, provision of loans, collection of cheques,
demand drafts, bills of exchange, promissory notes and foreign documentary and clean
bills; purchase of local and foreign currency documentary bills, negotiation of bills under
inland and foreign letters of credit, advising of inland and foreign letters of credit;
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carrying out standing instructions for payments; issuance of performance and financial
guarantees; keeping in safe custody deeds and securities; purchase and sale of securities;
remittance of funds; collection of interest on securities, dividend on shares and collection
of bills; credit transfers; issue of travelers’ cheques and gift cheques; acting as executors
and trustees; issuance of credit cards; underwriting, acting as bankers to new issues and
as bankers for refunds.( According to Constantin Milea, 1999)
Deposits are opened by those who have funds in hand. These include: individuals,
sole proprietorships, partnerships, trusts or limited companies.
4.3.1 Current Accounts and Cheques
Current Accounts or demand deposit accounts are bank accounts in which both
individuals and companies keep money. These accounts serve two purposes: firstly, they
provide an efficient system of payment between buyers and sellers, and secondly they
represent a safe place to keep excess cash.
Anyone may open a current account by providing proof of identity and a
signature, which the bank keeps in its files. In the case of companies, one or more
authorised signers sign all the cheques. After making the initial deposit into the account,
customers are expected to permanently maintain sufficient funds in the account to cover
any cheques they write except in the case of authorised overdraft.
A current account is opened usually for commercial or business purposes where a
large number of transactions is involved. As it represents a running and active account
and no restrictions on the number and the amount of transactions are implied.
If due diligence is carried out on the request of a prospective customer who is a
corporate or large borrower enjoying facilities from more than one bank, the banks may
inform the consortium leader, if under consortium and the concerned banks, if under
multiple banking arrangement.
An account holder will deposit cash or cheques into his account. The details are
entered in a paying in book/ slip and then the book/ slip along with the cheques or cash is
handed over to the teller. The teller verifies the amount and stamps the customer’s copy
confirming receipt. Customers can also deposit cheques/ cash in drop in boxes/ ATMs but
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they do so at their risk as they would not receive a confirmation of the deposit. There is
no restriction on the amount that may be deposited in a current account. Third party
cheques and cheques with endorsements may also be deposited in current accounts, as
well as there are no restrictions on the number of withdrawals that may be de in a period.
Cheques represent a demand draft drawn on a bank against its maker's funds, to
pay the stated amount of money to the bearer or named party, on presentment (demand)
on a stated date or after, according to www.businessdictionary.com. The account holder
is the drawer, the bank where the account is held represents the drawee bank and the
cheque is made payable at the payee’s or beneficiary’s order. Only the payee has the right
to endorse a cheque, except the situation where the cheque is a bearer cheque which may
be cashed by the person who presents it to the paying bank. However, most cheques are
order cheques, made payable to the order of a specific payee.
Once a month on the closing date, determined by the bank, the customer receives
a bank statement which details all of the transactions affecting the account in the previous
month.
4.3.2 Deposit Accounts: Savings and Passbook Accounts
For customers who wish to save money, banks provide savings accounts which
pay interest on the funds deposited. The procedure for opening such an account is the
same as for a current account.
Despite passbook accounts, savings accounts pay interest at a lower rate. On the
other hand, passbook accounts, so named due to the fact that each transaction affecting
the account is recorded by the bank clerk in a small account register, or passbook, pay
interest only every three months, while regular savings accounts pay interest every
month. Also, the passbook accounts have a withdrawal restriction, money can be
withdrawn only at the end of every quarter, at any other time of the year, withdrawals
will incur penalty charges including loss of interest.
4.3.3. Time deposits
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Time deposits, also called fixed deposits represent a depository institution […]
account that pays higher than savings account interest rates but imposes conditions on
the amount, frequency, and/or period of withdrawals. (According to
www.businessdictionary.com) They also include deposits such as recurring, cumulative,
annuity, reinvestment, cash certificates and so on.
The minimum period a fixed deposit may be placed is 7 days.
The maximum period a deposit may be placed is 120 months. Banks can accept deposits
for a longer period if ordered to do so by the courts, such as in the case of minors who
have more than 10 years to become majors. However, it is unusual for deposits to be
placed for more than 5 years.
The rates offered on these accounts are higher than on savings accounts as the
banker knows in advance when repayment has to be made. A variation is represented by
the notice deposit which is a term deposit for a specific period but withdrawable on
giving at least one complete day’s notice. Changes in rates are to be decided by the board
of directors or a group authorized by the board. Banks must disclose in advance the
schedule of interest rates that they offer on deposits.
Banks are free to determine the rate of interest that may be paid on fixed
deposits, but he rates must be approved by the board or a body to whom the board has
delegated this responsibility to. However, banks may offer deposits on a floating rate
which must be clearly tied to a base rate. Interest is normally paid on the maturity of the
deposit which is calculated on the daily balance.
Most banks offer certificates of deposits, in varying amounts, as a form of short-
term investment. These certificates are receipts issued by a depository institution to a
depositor who opens time deposit account, stating the amount deposited, the rate of
interest, and the minimum period for which the deposit should be maintained without
incurring early withdrawal penalties.
4.3.4. Credit cards
Credit Cards are a system of payment involving electronic transfers of payment.
They may be issued by banks or other commercial organizations. For the credit cards,
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two payment systems are available: the cardholder’s bank account which may be
automatically debited for the amount of the purchase and the merchant’s account
credited; or the customer is assigned a credit limit and each month he pays a percentage
of the total purchases, also called a revolving charge account. The card issuer determines
the minimum payment which must be made monthly, interest being charged on every
amount over this minimum. This interest is added to the next month’s bill. (According to
Marcheteau & co. 2005)
Nowadays, people may turn not only to banks for the issuance of credit cards, but
also to credit cards companies. Referring to these type of companies, G. Klein & J.
Lambert (1987) show that:
Credit card companies, though wholly owned by banks, are independent separate companies and encourage card-holders to borrow money from them. It is true that the interest rates charged are greater than those available from banks on overdrafts and loans, nevertheless a lot of people maintain large loans from credit card companies.
4.3.5. Security, guarantees, pledges and liens
Security, guarantees, pledges and liens are all related to loans. A loan refers to
written or oral agreement for a temporary transfer of cash from its owner (the lender) to
a borrower who promises to return it according to the terms of the agreement, usually
with interest for its use. (According to www.businessdictionary.com) If the loan is
repayable on the demand of the lender, it is called a demand loan, if repayable in equal
monthly payments, it is an installment loan or if repayable in lump sum on the loan's
maturity date, it is a time loan. (According to G. Klein & J.Lambert, 1987)
Depending upon the loan, financial institutions may require some sort of tangible
safeguard from their customers for the loans they provide them. Secured loans are
supported by transferable securities (stocks, debentures) or other negotiable financial
instruments which become the possession of the lender if the borrower defaults on the
loan. A guarantee may be provided as a loan safeguard. The borrower and the guarantor
are different parties. For instance, a parent company may guarantee the loan of its
subsidiary. In the case of default of the subsidiary, the parent company must assume the
loan.
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The pledge is another loan safeguard, involving cash deposit or personal property
as a security for a loan. A pledge agreement entitles the pledge to retain the object of
property until the borrower satisfies the debt, and to sell the goods to recover the debt in
case of non-performance.
Lien means the right of a creditor to retain goods and securities owned by the
debtor bailed to the bank, until the loan due from the debtor is repaid. The creditor has
the right to retain the security of the debtor but not to sell it. The party having the lien, the
lienor, may sell the property.
4.3.6. Bills of Exchange
Defined by www.businessdictionary.com as a written, unconditional order by one
party (the drawer) to another (the drawee) to pay a certain sum, either immediately or on
a fixed date, for payment of goods and/or services received, bills of exchange may be
discounted by a third party for an amount lower than the party will receive when the bill
matures.
The party discounting the bill gains by receiving money at an earlier date. The
amount of discount the banker deducts from the total amount of the bill will vary
according to the risks the purchaser takes. A sound bill is one which is backed or
countersigned by a well-known finance house or bank. This is another way for banks to
lend money, this way businessmen may replenish their working capital quickly.
4.3.7. Other Banking Services
Banks issue traveller’s checks in various denominations to customers travelling
abroad. These may be used to pay accommodation and restaurant bills and may also be
exchanged for the local currency of the country visited.
Banks may also act as trustee and executors for both individuals and corporate
customers. All banks have vaults and most rent safety deposit boxes to customers that
wish to keep their important documents, stock certificates, jewellery or other valuables in
guarded environment. Most banks also offer money orders and cashier’s checks for
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purchase as an alternative payment method to cheques. The customer pays the face value
of the money order or cashier’s check purchased plus a small commission or fee. Money
orders and cashier’s checks are drawn in three copies, one retained by the bank, the
second kept by the purchaser and the third given to the payee.
In the international or foreign trade, banks play a crucial role by acting as
intermediaries for the collection and transfer of payments in different currencies between
buyers and sellers located in different countries.
The services that banks provide in foreign trade are: handling shipping
documents; observance of buyer’s conditions of purchase; discounting bills of exchange;
loans to exporters; collecting payments, etc.
The payments may be done by: cash with order, foreign bill of exchange,
documentary bill, documentary letter of credit, banker’s draft and transfer.
4.3. Means of Payment
Bill of exchange or draft. It represents an order requiring the person to whom it
is addressed to pay on demand or at some future date a stated sum of money to, or the
order of a specified person, or to bearer. Consequently, bills of exchange include three
parties: the creditor, who draws the bill (drawer), the debtor upon whom the bill is drawn
(drawee), the person to whom the money is to be paid (payee), who may be the drawer
himself or a third party to whom the drawer is indebted.
Promissory note. A promissory note, referred to as a note payable in
accounting, or commonly as just a note, is a contract where one party (the maker or
issuer) makes an unconditional promise in writing to pay a sum of money to the other
(the payee), either at a fixed or determinable future time or on demand of the payee,
under specific terms. They differ from IOUs in that they contain a specific promise to
pay, rather than simply acknowledging that a debt exists.
The terms of a note usually include the principal amount, the interest rate if any,
the parties, the date, the terms of repayment (which could include interest) and the
maturity date. Sometimes, provisions are included concerning the payee's rights in the
event of a default, which may include foreclosure of the maker's assets. Demand
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promissory notes are notes that do not carry a specific maturity date, but are due on
demand of the lender. (According to G. Lipscombe, 1990)
Historically, promissory notes have acted as a form of privately issued currency.
In many jurisdictions today, bearer negotiable promissory notes are illegal because they
can act as an alternative currency.
An IOU (abbreviated from the phrase "I owe you") is usually an informal
document acknowledging debt. It differs from a promissory note in that an IOU is not a
negotiable instrument and does not specify repayment terms such as the time of
repayment. IOUs usually specify the debtor, the amount owed, and sometimes the
creditor and may be signed or carry distinguishing marks or designs to ensure
authenticity. In some cases, IOUs may be redeemable for a specific product or service
rather than a quantity of currency.
Banker’s draft is a draft drawn by a bank upon another bank or ordering one of
its own branches or agents to pay on demand a certain sum of money to a specified
person.(According to www.businessdictionary.com)
Bank drafts are commonly used by banks in dealings with other banks, or when a
creditor or seller is unwilling to accept an ordinary check from a debtor or buyer in
another city or country. When a customer (the drawer) requests a draft, the bank
withdraws the amount of the draft from his or her account and holds it to honor the draft
on its presentment by the drawee. Because, in normal circumstances, a draft is certain to
be paid, it is generally accepted as a cash equivalent.
A letter of credit is a document issued mostly by a financial institution, used
primarily in trade finance, which usually provides an irrevocable payment undertaking.
The letter of credit can also be source of payment for a transaction, meaning that
redeeming the letter of credit will pay an exporter. Letters of credit are used primarily in
international trade transactions of significant value, for deals between a supplier in one
country and a customer in another. (According to G.Lipscombe, 1990)
The parties to a letter of credit are usually a beneficiary who is to receive the
money, the issuing bank of whom the applicant is a client, and the advising bank of
whom the beneficiary is a client.
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Almost all letters of credit are irrevocable, i.e., cannot be amended or cancelled
without prior agreement of the beneficiary, the issuing bank and the confirming bank. In
executing a transaction, letters of credit incorporate functions common to Traveler's
cheques.
4.3. Means of payment in foreign business
Foreign bill of exchange. The bill of exchange looks like a cheque which is
drawn on an overseas buyer, or even on a third party as designated in the export contact,
for the sum agreed as settlement. An exporter can send a Bill of Exchange for the value
of goods for export through the banking system for payment by an overseas buyer on
presentation. (According to G. Lipscombe, 1990)
The Bill is called a sight draft if it is made out payable on demand. If it is payable
at a fixed or future time it is called a term draft, because the buyer is receiving a period of
credit, known as the tenor of the Bill. The buyer signifies and agreement to pay on the
due date by writing an acceptance across the face of the Bill.
Banker’s draft - a banker's draft is a cheque where the funds are taken directly
from the financial institution rather than the individual drawer's account. The online
business dictionary provides the following definition: bill of exchange drawn by a bank
on itself, or on a correspondent bank in another city or country. (According to
www.businessdictionary.com )
Bank drafts are commonly used by banks in dealings with other banks, or when a
creditor or seller is unwilling to accept an ordinary check from a debtor or buyer in
another city or country. In local transactions a certified check or a cashier's check serves
the same purpose. When a customer (the drawer) requests a draft, the bank withdraws the
amount of the draft from his or her account and holds it to honor the draft on its
presentment by the drawee. Because, in normal circumstances, a draft is certain to be
paid, it is generally accepted as a cash equivalent.
In contrast, when an individual requests a banker's draft they must immediately
transfer the amount of the draft (plus any applicable fees and charges) from their own
account to the bank's account. Because the funds of a banker's draft have already been
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transferred they are proven to be available; unless the draft is a forgery or stolen, or the
bank issuing the draft goes out of business before the draft is deposited and cleared, the
draft will be honoured. Like other types of cheques, a draft must still be cleared and so it
will take several days for the funds to become available in the payee's account.
Documentary letter of credit – The letter of credit is the most used method of
payment in foreign trade to settle debts. It represents a document issued by a bank which
guarantees the payment of a customer's drafts for a specified period and up to a specified
amount.
The Documentary Letter of Credit provides a more secure way of carrying out
transactions in import-export trade than by documentary bills collection. A letter of credit
when transmitted through a bank, usually in the exporter’s country, becomes the means
by which the exporter obtains payment. (According to Marcheteau &co. 2005:271)
Useful Terminology
TERM DEFINITION ROMANIAN EQUIVALENT
accrued interest Interest earned but not received (realized).
dobândă intermediară acumulată
ATM Cash dispensers that have replaced tellers in banks and are to be found in most busy streets and shopping areas.
distribuitor automat de bancnote
base rate The prime lending rate or best rate at which bankers agree to lend money for top borrowers. It sets the annual interest rate and serves as a reference for the credit terms granted by banks.
rată de bază a dobânzii
banking Business activity of accepting and safeguarding money owned by other individuals and entities, and then lending out this money in order to earn a profit.
Activitate bancară
banker’s draft Bill of exchange drawn by a bank on itself, or on a correspondent bank in another city or country
trată bancară
Bearer cheque Check marked 'Cash,' 'The bearer' or other words to the effect, but without the name of the entity to whom it is to be paid (its payee). Such checks (and drafts) are payable to anyone who presents them, usually over the counter of the paying bank.
Cec la purtător
Bill of Exchange Written, unconditional order by one Cambie, trată
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party (the drawer) to another (the drawee) to pay a certain sum, either immediately (the sight bill) or on a fixed date (the term bill), for payment of goods and/or services received.
Bond Debt instrument which certifies a contract between the borrower (bond issuer) and the lender (bondholder) as spelled out in the bond indenture.
Obligațiune (împrumut pe termen lung cu dobândă fixatăla termenele de plată specificate, cu scadență precisă)
certificate of deposit Debt instrument issued by banks that usually pay interest
certificat de depozit
checking account Non interest-bearing bank account which allows the accountholder to write checks against the funds in the account.
cont curent
clearing A method adopted by banks to settle their mutual indebtedness by exchanging cheques and bills held by each against the other before settling the cash balance.
compensare
collateral Property offered as a guaranty to obtain a loan or the extension of a credit line.
garanție
Current account The type of bank account the general public is most familiar with as its aim is to serve customer’s needs for their day-to-day operations.
cont curent
debenture Charge, claim, or lien on asset or property, usually as a result of a loan.
Titlu de creanță
Deposit account Interest earning account at a bank or other depository institution the withdrawals from which are limited to the amount of the account's credit balance.
Cont pentru depuneri
Disbursement Payment or outlay by cash, check, or voucher.
Efectuare de plăți
documentary bill In international trading, a bill of exchange or commercial draft that is presented for payment with the required documents such as a clean bill of lading, certificate of insurance, certificate of origin
trată documentară
draft Bill of exchange which is a written payment order from one party (the drawer) to another (the drawee) to pay a stated sum to a third party (the payee) either immediately (in case of a sight draft) or on or before a specified date (in case of a time draft).
Trată
drawee Entity that is expected to accept and pay a bill of exchange (check, draft,
Instituție financiară care execută plata, tras
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letter of credit, etc.) on presentation or on a certain date (called due date or maturity date
drawer Maker or writer of a bill of exchange (check, draft, letter of credit, etc.) who directs the drawee (such as a bank) to pay the stated amount to a third party (the payee).
Trăgător, persoană care dispune palta,
Due date Date on which a bill of exchange (check, draft, letter of credit, etc.) is payable.
Data scadenței
face valueApparent worth or the nominal value shown on the principal ('face' or 'head') side of a bill of exchange, currency, security (stock/share, bond), or other type of financial instrument.
valoare nominală
financial lease Fixed-term (and usually non-cancelable) lease that is similar to a loan agreement for purchase of a capital asset on installments.
acord de garantare credite
instalment Money paid in regular amounts, at regular intervals when paying back a loan.
rată
interest Payment made by a borrower for the use of money lent to him by a bank or financial institution, calculated as a percentage of the capital borrowed.
dobândă
letter of credit Written commitment to pay, by a buyer's or importer's bank (called the issuing bank) to the seller's or exporter's bank (called the accepting bank, negotiating bank, or paying bank).
acreditiv
lien Creditor's conditional right of ownership (called security interest) against a debtor's asset or property that bars its sale or transfer without paying off the creditor
gaj
mortgage Debt instrument by which the borrower gives the lender a lien on his property as a security as a repayment of the loan.
ipotecă
mortgage debenture Corporate loan collateralized by mortgage on the specified assets of the issuing firm.
obligațiune ipotecară
overdraft A bank account from which money has been overdrawn.
descoperire de cont
perishable goods Goods such as food products that must be used within a short period of time.
bunuri perisabile
pledge Cash deposit or placing of owned gaj, garanție
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property by a debtor (the pledger) to a creditor (the pledgee) as a security for a loan or obligation
promissory note Written, signed, unconditional, and unsecured promise by one party (the maker or promisor) to another (the payee or promisee) that commits the maker to pay a specified sum on demand, or on a fixed or a determinable date
bilet la ordin
safe deposit The act of putting important documents or valuable things in a special room or metal box, usually in a bank, in order to keep them safe
depozit în seif
savings account A bank account into which a the account holder pays money not to be spent for some time and which earns interest more than an ordinary account.
cont de economii
securities Financing or investment instruments (some negotiable, others not) bought and sold in financial markets, such as bonds, debentures, notes, options, shares (stocks), and warrants
titluri de valoare, garanție, acoperire
secured loan Loan agreement under which a borrower pledges a specific asset or property which the lender can seize in case of default.
credit pe bază de garanții
sight deposit a bank deposit which can be withdrawn on demand.
statement of account The list of debts and credits which is printed out at regular intervals so that customers may know how much money is left in their account.
extras de cont
standing order Type of preauthorized-payment under which an accountholder instructs a bank to pay a specified amount, directly from his or her account balance, to a named party on a regular basis.
ordin de plată permanent
traveller’s cheque Bill of exchange designed specially for a business or vacation traveler, it is actually a sight draft with the security of a letter of credit.
cec de călătorie
trustee Person or organization (such as a trust company) named in trust agreement by the trustor or a court (the first party) as a trusted third party to nominally own, and protect and handle, trust-property for the benefit of one or more beneficiaries (the second party) in
gestionar, garant, girant,
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accordance with the terms of the trust agreement
unsecured loan A loan against which no collateral or security is pledged and which constitutes an uncovered risk for the lender.
împrumut negarantat
withdrawal A removal of funds from an account. retragere de numerar
Conclusions
General Aspects on the Business Environment and Useful Terminology puts the
stress on business organizations, identifying and describing them, highlighting key steps
to be followed such as raising capital, stating up or bankruptcy and focusing on the
importance of accounting and financial institutions.
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Organised in four chapters covering some key features of companies, the
paper’s aim is also to provide the terminology related to the field. Therefore, the
theoretical aspects are completed by a mini-dictionary after each chapter, providing terms
of economics, which appear in the corpus of the paper, or are related to that specific topic
the chapter is related to, their English definition, and the Romanian Equivalent of each
term.
In the first chapter, Legal Forms of Business Organizations, I have tried to
identify the English and the Romanian business entities and describe each of them
focusing on the type of ownership, type of liability and presenting the advantages and the
disadvantages each business organization implies. Herein I have intended to point out
that people tend to associate with others to do business in order to increase the influence
and the bargaining power of the group, or to provide money or specific skills.
Consequently different types of business organizations appear, such as partnerships,
limited liability companies, public limited companies, corporations and trusts.
After describing each of these entities, some differences have been noticed
between them. A sole proprietorship is exclusively owned, managed and controlled by a
single person with all authority, responsibility and risk, while in a partnership two or
more persons agree to furnish a part of the capital and labour and to share the profits or
losses. In case of companies, “shareholders” and “liability” are key words. While a public
limited company is a firm whose securities are traded on a stock exchange and can be
bought and sold by anyone, a private limited company is a type of incorporated firm
which offers limited liability to its shareholders but which, unlike a public firm, places
certain restrictions on its ownership. The enterprise system has as essential features
private ownership, freedom of choice, competition and free market.
In Romania, the majority of companies registered, whether domestic or foreign-
owned, are limited liability companies.
In the second chapter, Businesses from Raising Capital to Liquidation, I have
focused on the steps a company has to follow from starting up until liquidation. After
financing themselves with borrowings, equity, allotment of shares and bonds or using
profits, the next step is to focus on the main objectives, such as obtaining profitability,
return on investment, return on assets, earnings per share, dividends and cash flow. After
81
starting their activity, companies must also comply with the liabilities to the government,
namely taxation. They may be taxed on their incomes, property, or existence by various
jurisdictions. One of the taxes, companies must pay is the corporation tax which is
payable on a company’s income or gains at the statutory rate. However, cases where
some expanses are tax deductible appear as well provided that it is incurred with the
purpose of generating taxable revenues including that which is provided by legal
enactments in force.
In the last part of this chapter I have pointed out the consequences of a company’s
incapacity to pay out its debts, namely insolvency, liquidation, and bankruptcy.
The third chapter is about Accounting and Financial Reports, as none of the
business organizations can operate without accountancy as it is a vital element, being
responsible with recording the way a business has grown and, after analyzing figures,
suggesting the way it should go in the future. However, accounting must be based on
some general accepted principles such as going concern, true and fair view, or air
presentation, prudence, consistency, matching principle, historical cost, accrual basis and
materiality. Responsible with providing stakeholders legal information such as financial
accounts in trading account and balance sheets, financial accounting is useful in
producing financial statements for all purposes, and also specifying the information of a
business unit production for selection and also for performance opinion.
The objective of financial statements is to provide information about the financial
position, performance and changes in financial position of an enterprise that is useful to a
wide range of users in making economic decisions. Therefore they should be
understandable, relevant, reliable and comparable as they are relevant for vendors,
government entities, financial institutions, investors, employees and managers.
In contrast to financial accountancy, management accounting is designed and
intended for managers within the organization, being usually confidential rather than
publicly reported and forward-looking, instead of historical. However, in order to
ascertain the validity and reliability of information in financial statements, audits are
appointed, also to provide an assessment of a system's internal control. The auditor’s
certificate assures shareholders, partners and creditors of the accuracy of book accounts,
being also a guarantee against possible errors and a deterrent against fraud.
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The last chapter puts the stress on Banking Services and Means of Payment, as I
tried to focus on one of the most important components of the external environment of
business. For the existence of business entities, banks and the services they provide are a
major element in the development and high performance of the business’ activity. Not
only as a funding possibility by the granting of loans, are banks vital, but also by the
transactions between companies which they facilitate.
Therefore services such as: acceptance of deposits, provision of loans, collection
of cheques, demand drafts, bills of exchange, promissory notes and foreign documentary
and clean bills; remittance of funds; collection of interest on securities, dividend on
shares and collection of bills; credit transfers; issue of travelers’ cheques and gift
cheques; acting as executors and trustees; issuance of credit cards, make them important
to both companies and individuals.
The paper’s aim is to provide general features of the business environment by
combining the theoretical aspects on the topics presented herein, with the useful
terminology.
Rezumat
Nucleul acestei lucrări îl constituie mediul afacerilor, mai exact societățile
comerciale, lucrarea furnizând aspecte teoretice despre câteva realități economice
companiile, punând în același timp accentul pe terminologia engleză specifică
domeniului. Cele 4 capitole ale lucrării prezintă aspecte teoretice corespunzătoare atât
mediului intern cât și celui extern al unei companii. Pentru ca terminologia să fie cât mai
accesibilă, fiecare capitol este încheiat printr-un mic dicționar cu termeni specifici
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capitolului, ce precizează definiția termenului respectiv în limba engleză și echivalentul
în limba româna.
Primul capitol este conceput în jurul entităților comerciale englezești, dar și a
realităților corespondente românești, precum societățile pe acțiuni, societățile în
comandită simplă, societățile cu răspundere limitată sau trusturile. Se urmărește aici,
clasificarea si definirea societăților comerciale, prezentarea caracteristicilor de bază,
avantajele sau dezavantaje lor, cât și obiectivele urmărite de companii.
Cel de-al doilea capitol vine în completarea celui dintâi oferind mai multe
informații cu privire la înființarea unei companii, pașii de urmat în aceste privințe,
condițiile care trebuie îndeplinite, cât și la metodele de finanțare. Cu alte cuvinte,
capitolul surprinde etapele prin care trece o companie de la fondare până la faliment,
scoțând în evidență termeni precum acțiuni la purtător, creanță, impozite sau
insolvabilitate și lichidare.
Capitolul trei se referă la unul dintre cele mai importante departamente din cadrul
unei firme pentru buna funcționare cât și pentru evaluarea ei, partea de contabilitate.
Capitolul definește concepte precum plan de conturi, bilanț contabil, bunuri mobile și
imobile, și prezintă importanța evaluărilor externe efectuate de către audit.
Cel de-al patrulea capitol este consacrat domeniului bancar, o componentă a
mediului extern al întreprinderilor, vitală pentru desfășurarea activității acestora. Prezint
aici o clasificare a instituțiilor fianciare, a serviciilor furnizate și a metodelor de plată,
prezentând o scurtă descriere și definindu-le totodată pe fiecare în parte.
REFERENCES
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Corespondență în afaceri în limbile româna și engleză, București, Teora, 2003;4. Ciucuc, Olea, Tănăsescu, Eugenia, English for business purposes,Teora,
București, 20015. Donnelly, G, The Firm in Society, London, Longman Group ltd, 1991;6. Klein, G. & Lambert, J., The business of Banking, London, 1987;7. Lipscombe, G., Banking: The Business, Pitman, 1990;8. Marchetean M., Berman, J.B, Savio, M., Daube,J.P., Delbard, O., Demazet, B.,
Engleză pentru economie, , București, Teora 2000;
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9. Milea, Constantin, Commercial, Financial and Management English, a practical course, , București, ALL Educational 1997.
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