Professional Practices: "The Structure of Organizations"

Professional Practices
“The Structure of
Organizations”
Contents
• Organization
• Legal Forms of Organizations
– Sole proprietorship
– Partnership
– corporation
• Companies
– Constitution of a company
– Directors and company secretary
– Disclosure requirements
– Corporate governance
Organization
“An organized group of people with a

particular purpose, such as a business or
government department”
Organization
• It is impossible to live in a civilized society
without close contact with many large
organizations such as
– Schools
– Universities
– Government departments
– Health service
– Commercial and industrial companies
Legal Form of Organization
• Fundamentally the law recognizes individuals
that is the individuals has a legal existence.
• They can
– enter into the contracts which can be enforced by
the courts
– Sued for damages
– Give evidences...
• Organizations should also be given legal
existence separate from that of its
proprietors....and that is done through a
process known as “Incorporation”.
• After adopting any specific legal configuration,
organizations take different legal forms.
• Four basic legal forms of organization are Sole
Proprietorship; Partnerships and Corporations.
• Sole Proprietorship
– The vast majority of small businesses start out as sole proprietorships.
– According to 1984 companies act partnership can be extend from 2 to
7 partners while according to act 2017 they can be from 2 to 20
– These firms are owned by one person, usually the individual who has
day-to-day responsibility for running the business.
– Sole proprietorships own all the assets of the business and the profits
generated by it.
– They also assume complete responsibility for any of its liabilities or
debts.
– In the eyes of the law and the public, you are one in the same with the
business.
• Partnerships
– In a Partnership, two or more people share ownership of a
single business.
– Like proprietorships, the law does not distinguish between the
business and its owners.
– The Partners should have a legal agreement that sets forth how
decisions will be made, profits will be shared, disputes will be
resolved, how future partners will be admitted to the
partnership or what steps will be taken to dissolve the
partnership when needed.
– They also must decide up front how much time and capital
each will contribute, etc.
• Corporations
– A Corporation, chartered by the state in which it is
headquartered, is considered by law to be a unique entity,
separate and apart from those who own it.
– A Corporation can be taxed; it can be sued; it can enter into
contractual agreements.
– The owners of a corporation are its shareholders.
– The shareholders elect a board of directors to oversee the
major policies and decisions.
– The corporation has a life of its own and does not dissolve
when ownership changes.
Companies
• A company is a legal entity made up of an
association of people.
• Company members share a common purpose,
and unite in order to focus their various
talents and organize their collectively available
skills or resources to achieve specific, declared
goals.
Companies
• The essence of a company is that it enjoys an
independent existence as a legal person.
• Ownership of the company is divided into a
number of shares.
• An individual or another company may own one
or more shares.
• Individuals who own shares in a company are
known as the shareholders or members of the
company.
Companies
Public Private
Compan
y
Limited Unlimited
Companies
• Public companies are allowed to offer their
share to the public and their names must end
with the word “Public limited company”.
• A public company has a minimum paid up
capital of Rs. 5 lacs.
• There is no limit for the number of members.
Companies
• A private company cannot offer its shares to the
public and its name must end with the word
“limited”.
• It has a minimum paid up capital of Rs. 1 lakh.
• It has limited members up to 200.
• It prohibits any invitation from public for
subscription to shares and any acceptance of
deposits from persons other than members or
directors.
Companies
• In an unlimited company, the shareholders
are personally liable for all the company’s
debts.
• The shareholders (or members) of this type of
company have unlimited liability.
• This means each member is jointly and
severally liable for the debts of the company
in the event of its winding-up.
Companies
Limited by
Limited Shares
Company Limited by
Guarantee
Companies
• Company limited by Guarantee:
– Commonly used where companies are formed for
non-commercial purposes, such as professional
bodies or charities.
– The members guarantee the payment of certain
fixed, usually small amount towards the
company’s debts if the company wound up
– Otherwise they have no economic rights in
relation to the company.
Companies
• Company limited by Shares
– It is the most common form of company used for
business ventures.
– Specifically, a limited company is a company in
which the liability of each shareholder is limited to
the amount individually invested
– Corporations are the most common example of a
limited company.
Companies
Companies
Directors and
Constitution Disclosure Corporate
the Company
of a Company Requirements Governance
Secretary
Constitution of a Company
• All companies must have a written
constitution, which consists of two documents
– Memorandum of association....which controls its
external relations
– Articles of association.... which states how
internal affairs are to be run.
The Memorandum of Association
• This document covers the following matters
– The name of the company
– The country in which its registered office will be
located
– The objects of the company
– A liability clause
– The company’s authorised share capital and the
number and nominal value of its shares.
The Articles of Association
• This document usually addresses the following
topics
– The rules to be applied in alloting new shares
– The rules governing the transfer of shares
– The rules regarding meeting of shareholders or
members
– Appointment and removal of directors
– Powers of directors
– Dividends and reserves
Directors and the Company Secretary
• Directors are elected by shareholders to run

the company on their behalf.
• They have considerable powers and in a large
company with many shareholders, the
effective democratic control is very weak.
• This situation is balanced by a series of obligations
– Directors must act in good faith and for the benefit of
company.
– Directors must exercise the skill and care in carrying
out their duties that might be expected from someone
of their qualifications and experience.
– A director who has an interest in a contract made with
the company must disclose this interest to the board
of directors.
• Most companies have both executive and non-

executive directors.
– Executive directors are normally also employees
of the company, with specific responsibility.
– Non-executive directors act in advisory capacity
only. Typically they attend monthly board
meetings to offer the benefit of their advice and
are paid a fee for their services.
• A company is required to have a company

secretary whose duty is to keep various
records that a company is obliged to maintain.
• Because of the technical expertise required,
small companies often appoint an outside
professional advisor as a company secretary.
Disclosure Requirements
• The limited companies are required to disclose
information about their operations.
• All limited companies must submit an annual
return and copies of their accounts to the
registrar of companies.
Corporate governance
“Relationship between stakeholders in

companies and its most senior management is
known as corporate governance”

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Professional Practices

“An organized group of people with a

• Directors are elected by shareholders to run

• Most companies have both executive and non-

• A company is required to have a company

“Relationship between stakeholders in

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