dizertatie

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

15

“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.

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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

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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

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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

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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

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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

62

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

63

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

64

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;

67

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

1. Buckley, Martin, The Structure of Business, Pitman, 1990;2. Brookes M., Horner B., Business English, București, Teora, 1999;3. Chiriacescu, Adriana, Mureșan, Laura, Bargiel, Virginia, Hollinger, A,

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.

10. Milea, Constantin, Commercial, Financial and Accounting English – a practical course, ediția a II-a, revizuită și adăugită, , București, ALL 1999;

11. Năstăsescu, Violeta, Dicționar Economic englez-român, român-englez, , București, Niculescu 2007;

12. Negrea, Violeta, Top Management Language, 2005;http://facultate.regielive.ro/engleza/top_management_language-61464.html consultat aprilie 201013. Petreson, William H., An outline of American Economy, USIA, 1990;14. Rachmand David J. and co., Business Today, 1990;15. http://www.businessdictionary.com/ consultat iunie 201016. http://www.investorwords.com/ consultat iunie 201017. http://www.macmillandictionary.com/ consultat iunie 2010

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