BUSINESS ORGANISATION AND PROCESSES
ASSESSMENT 1 2006
In a Limited liability company, there must be at least two shareholders with no maximum upper limit who own the company. All limited companies must be registered with the Registrar of Companies to whom the companies must send their annual financial statements. A limited company is separated in law from its owners. Because it has its own legal entity, any disputes concerning the company, will be solely with the company and not the shareholders. The company is run by a board of directors, who in turn are chosen by the shareholders, who could be many but do not have any interest in running the company. Sometimes, because it is a small company with only a few shareholders they are the board as well. There are 2 types of limited companies, which are private limited or public limited. There are 2 types of limited companies and they are private limited or public limited. One distinct difference between private limited and public limited companies is that you may not sell private company shares to the public from a private limited company, as you may do with a public limited company. For a business to register as a public company, it needs to setup a legal framework which includes (a) A Memorandum of Association and (b) The Articles of Association. The company is granted a Certificate of Incorporation which allows it to start trading as a limited company, when these documents are submitted. The documents must include the following.
Memorandum of Association:
The name of the company, which should also state (Ltd) if a private company and "public limited company" (plc) in the case of it being a public limited company.
The location of its registered office.
The capital of the company. This indicates the limit amount of capital that the company is allowed to raise.
The Articles of Association:
The document depicts the rules of the internal administration that the company wants to follow. It includes rules like:
The appointments and powers of the directors.
Rules concerning the voting of shareholders and their meetings.
The types of shares and the rights of the shareholders concerning each of these.
The rules and procedures pertaining to transfer shares.
Articles may only be altered, when 75% of the members are agreement of the change. When businesses want to expand they need capital, it is difficult to raise finance internally. One of the options that exist to raise finance is to sell some company shares. Some common terms used when selling shares and that are important to understand are:
Authorised Capital which is the value of the shares that the company is allowed to issue according to its Memorandum of Association.
Issued capital, which is the value of the company's capital already issued to shareholders.
Paid up capital, is the amount of capital that has already been paid to the company when shares are issued.
Unpaid capital is the value finance still to be received from shares that have been issued.
If a company wants to raise finance by selling shares, it needs to issue a prospectus which is a way to advertise its shares to the public. The information that the prospectus must contain is:
Particulars of contracts entered into by the company in the last 2 years, which might influence the potential investors.
A auditor's report of the company's showing statements of its assets, liabilities, profits, losses, and dividends paid over the past 5 years
If the expansion entails the purchase of more property or another business, a statement giving the details of the prospective seller and the price to be paid.
The public sector has 2 types of organisations, those that are to run on a commercial basis and make a profit which would be nationalised industries like coal, steel and power producers. The other type is not for profit organisations, which include organisations...
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