04 ENTERPRISE

An enterprise, or business is any organisation that makes goods or provides services to

satisfy customer needs. There are many types of business and they range from small firms
owned and run by one self-employed person to large companies which employ thousands of
staff all over the world. People who run a business want to achieve their objectives, which
are:
• to survive in the market - businesses that want to survive have to make goods and
services that satisfy customers and are competitive
• to make maximum profit - a business does this by selling the goods at a price higher
than the costs of production
• develop its activities and to expand - the company aims to grow and broaden its
operations

In order to create goods and services, a business buys or hires inputs (raw materials,
equipment, buildings and staff.) The expenses a firm has with these inputs are costs.
The inputs are transformed into outputs called products (goods and services). When the
products are sold to customers, the company sets a price for which the customers buy them.
A business adds value when the selling price of an item produced is higher than the cost of
all the resources used to make it.
Business activities include transactions, which include paying out money for the
inputs (costs) and taking in money for the sales (revenue). The difference between the two is
profit or loss. When the revenue from sales is higher than production costs, the company
makes a profit. When the revenue from sales is not enough to cover all the costs of
production a loss is made. If a business makes a profit, it can use it to:
• reward owners
• invest in growth
• save for the future, in case there is a downturn in revenue
• pay out dividends to the shareholders

Companies are organized under different kinds of ownership. There are two sectors of
business public and private. Public sector organizations are established by the state
government, ministries, regional or municipal governments. Such organizations, which are
called public enterprises, provide essential services for the whole population. Private
business organizations are run by private individuals or groups, usually as a means of
enterprise for profit, and are not controlled by the state. They have different organizational
structures. In the private sector, most businesses are sole traders, partnerships, or limited
companies. Other types of ownership include franchises and co-operatives.

There are many types of business organisations in the Czech Republic. These range from
small firms owned and run by two or more people to large companies which employ thousands
of staff members. Their structures vary, depending on their main function and what they are
trying to achieve. There are also differences in ownership of the companies and their owners’
liabilities. There are five main types:

1. Business Corporations
2. Trades
3. Cooperatives
4. State Enterprises

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 5. Other (non-profit organizations)

BUSINESS CORPORATIONS
Business Corporations operate according to Business Corporations Act which specifies the
rules and regulations for each type of corporation, such as the base capital, the number of
owners, partners or shareholders, liabilities, statutory bodies etc. No business corporation can
start its business activities before it is listed in the Commercial Register which is maintained
by the Commercial Court. In the Czech Republic, most business organisations fall under two
following types:

Limited Liability Company (the Czech abbreviation is s.r.o.)

• It is a company, which may be founded by one or more persons (maximum number
allowed is fifty) who provide the capital (minimum CZK 200,000). Each member must
contribute minimum CZK 20,000.
• The members are liable for company’s obligations only up to this amount, but not with
their personal property.
• The company is liable to the creditors with all its registered capital.
• The company is managed by a statutory body which is made up of one or more
managing directors. They are elected and recalled by the company’s top body- the
general meeting.

Joint stock company (the Czech abbreviation is a.s.)

• It is a company which is jointly owned by individuals who hold shares in it. The
minimum registered capital of a joint stock company is CZK 2 million.
• The company’s shares are sold at the Stock Exchange and are freely transferable
between buyers and sellers.
• The shareholders are not liable for the debts of the company.
• The shareholders are owners of the company, and they elect a Board of Directors, which
controls the company.
• At least once a year, a general meeting of shareholders is called.
• The part of the profit which is not re-invested in the company is paid out to the
shareholders as a dividend.

TRADES (SOLE TRADERS)

A sole trader describes any business that is owned and controlled by one person, although
they may employ workers. Sole traders do not have a separate legal existence from their owner.
As a result, the owners are personally liable for the firm's debts, and may have to pay them out
of their own pocket – they have unlimited liability. In the Czech Republic, sole traders operate
under Trade Licensing Act and their business activities require the trade licence. This is a
certificate which authorizes the person to operate their own business. The most common trade
activities are:
• productive activities – manufacture and sale of goods
• business activities – purchase and resale of goods, accommodation, travel agencies
• services – repairs, maintenance, installations

CO-OPERATIVES
A co-operative operates under Business Corporations Act and their legal status is legal
person. It is a business that is owned and operated by its members for their mutual benefit. It
is formed by at least 5 members (or at least 2 legal entities). A minimum capital of CZK 50,000

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is required by law when a cooperative is formed. The members are not liable for the debts of
the cooperative. The cooperative is liable for the obligations with all its assets.

PUBLIC ENTERPRISES
These companies are legal entities established by the state government, ministries, regional
or municipal governments, which conduct business activity. They usually provide essential
services for the whole population, such as public transport or the maintenance of streets. Public
enterprises that operate on the national scale are controlled by the state through relevant
ministries. The founder (the state authority) subsidizes the company, determines the subject of
enterprise, and nominates the company head - the Director. The company’s activities are
controlled by the Supervisory Board. It participates in planning and setting long-term strategies
of the company, oversees its economic situation, checks its annual reports, and has the right to
recommend the replacement of the Director. The company’s profit is distributed into tax
payments and mandatory funds (reserve funds). Any remaining profit becomes the disposable
income (net profit) and the company management decides how to use it.

Budgetary organizations
Budgetary organizations are state bodies that are funded from the state budget for a
particular year. Examples include the Office of the President of the Republic, the Parliament,
the Czech Grant Agency, individual ministries, the Constitutional Court of the Czech Republic,
the Academy of Sciences, hospitals, state schools, universities, museums, and research
institutes. Budgetary organizations are entirely financed by the state and must return any
unused funds as well as any revenues resulting from their own activities to the state budget at
the end of the year.

Contributory (allowance) organizations

Contributory organizations are established and controlled by the state or local authorities
and perform activities particularly in the field of culture, education, environment, agriculture,
research, services and information technologies. They are partly funded by the state or local
authorities and they have their own income in addition to the government subsidies to cover
their expenditures. The state or local government has the legal right to appoint and dismiss
directors and the right to receive the profits from the operations of an enterprise

NON-PROFIT ORGANIZATIONS
These are organizations that do not distribute their surplus funds to owners or shareholders
but use them to pursue their goals. All the organization’s profit (surplus) must be retained by
the organization for its self-preservation, expansion and future plans. Most non-profit
organizations provide programs and services which serve the public interest but are often
overlooked and not enforced by the government. Examples of NPOs include charities (i.e.
charitable organizations), educational, and public arts organizations. Some non-profit
organizations are business organizations with paid management and personnel, others employ
unpaid volunteers.

Every company has a defined organisational structure; this means that every employee
has a defined role in the organization and understands their responsibilities and their role in the
company. An organisation chart is a diagram that shows the internal structure of the company.
It shows the structure of departments within the whole company and the chain of command,
which specifies who is superior or subordinate to whom.

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 In a line structure organization, there is only one line between a higher function and a
subordinate one, the chain of command is clear and simple. Information and instructions are
passed from each employee or manager to the person one rank above or below them.

The line-and-staff structure organization combines the line organization with staff
departments. Line departments are involved in making decisions regarding the operation of the
organization, while staff areas provide specialized support. An example of a line department
might be the production department because it is directly responsible for producing the product.
A staff department (e.g. legal department) has employees who advise and assist to all line
departments.
A variation of the line-and-staff organizational structure is the matrix structure. In today's
workplace, employees work in a functional department (e.g. marketing, finance, accounting,
and human resource) but they can also work on projects managed by members of another
department. Matrix organizations combine both vertical authority relationships (where
employees report to their functional manager) and horizontal, or diagonal, work relationships
(where employees report to their project supervisor for the length of the project.

One method of organisation is to set up departments, which perform specific and

specialized business functions. It is important that all these separate functions are properly
integrated and co-ordinated so that all the separate parts of the business work together towards
the same objectives. Although there are significant differences between organizations, most of
them usually have departments which cover the four main functions – finance, human
resources, marketing, and operations.

Finance: This function includes the accounting, recording, controlling and analysing of the
firm's funds.

Human Resources: This department is responsible for employing and dismissing staff;
salaries, assessment and training. It keeps records of all employees in a company database.

Marketing: This function includes consumer and market research, pricing policy, promotion,
advertising and public relations.

Operations: The operations function includes the activities connected with the company’s
product, such as:

• Purchasing: This means buying all the different inputs the business needs in order to
do its work.
• Production: Department in manufacturing firms responsible for turning raw materials
into finished goods.
• Sales: This department is responsible for selling products and services
• Client services: This department is responsible for communication with customers. It
deals with their orders, claims and comments.
• Distribution: This means transporting goods to wholesalers, retailers or end users.
• Research and Development: Department responsible for improvements, innovations
and new products, which helps the company to expand in a direction outlined by
customer needs. It closely cooperates with marketing and production.