Legal Forms of Organisation

Private Limited Company

A private limited company is a type of business structure that limits the liability of its owners (shareholders) to the amount invested in the company. This means that the personal assets of the shareholders are generally protected in the event of the company facing financial difficulties or legal issues. The term “private” indicates that the shares of the company are not publicly traded on a stock exchange; instead, they are held privately by a limited number of individuals.

Key characteristics:

  • Limited Liability: Shareholders are not personally responsible for the company’s debts. Their liability is limited to the amount invested in the company.
  • Ownership: The company is owned by its shareholders, and ownership is determined by the number of shares held by each individual.
  • Private Ownership: Shares are not available for public trading. They are usually owned by a small group of individuals, often family members, friends, or business associates.
  • Management: Private limited companies are typically managed by a board of directors elected by the shareholders. The day-to-day operations may be overseen by appointed managers or directors.
  • Legal Formalities: There are legal formalities and regulations governing the formation and operation of private limited companies, including the filing of financial reports and adherence to company law.
  • Transferability of Shares: Shares in a private limited company are often subject to restrictions on transfer, and the consent of existing shareholders may be required before shares can be sold or transferred.
  • Perpetual Succession: A private limited company has perpetual succession, meaning that its existence is not affected by changes in ownership or the death of shareholders. The company continues to exist as a separate legal entity.
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Roles of Company Director

The role of a director in a private limited company is crucial to the overall management and decision-making processes. Directors are appointed by the shareholders to oversee the company’s operations, make strategic decisions, and ensure that the business complies with relevant laws and regulations.

Key Reponsibilities:

Directors play a pivotal role in formulating and implementing the company’s strategic objectives. They are involved in major decisions such as business expansion, financial strategies, and long-term planning.

  • They are responsible for ensuring that the company operates ethically, transparently, and in compliance with legal and regulatory requirements. They must uphold high standards of corporate governance.
  • Directors owe a fiduciary duty to the company and its shareholders. This duty includes acting in the best interests of the company, avoiding conflicts of interest, and ensuring the proper use of company resources.
  • Directors are typically involved in financial matters, including approving budgets, financial reports, and major expenditures. They may work closely with the company’s financial team to monitor financial performance.
  • Directors may be involved in appointing key officers like the CEO.
  • They are responsible for identifying and managing risks that could impact the company.
  • Directors must ensure that the company complies with relevant laws, regulations, and industry standards. This includes keeping abreast of changes in legislation and adapting company policies accordingly.

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Mergers and Acquisitions

Mergers: occurs when two companies of roughly equal size agree to combine their operations and form a new, single entity. The primary goal of a merger is often to achieve synergy, where the combined company is expected to be more valuable than the sum of its parts. Synergy can result from cost savings, increased market share, complementary resources, or enhanced capabilities.

  • Horizontal Merger: Involves companies operating in the same industry and at the same stage of the production process.
  • Vertical Merger: Involves companies at different stages of the production process or within the same supply chain.
  • Conglomerate Merger: Involves companies in unrelated business activities.

Example: If a company that produces smartphones merges with a company that manufactures camera sensors, the resulting entity may benefit from the synergies of combining their expertise to create more advanced products.

Acquisitions : or takeover, occurs when one company (the acquirer) purchases another company (the target) and gains control over its operations, assets, and liabilities. Acquisitions are often driven by the acquirer’s desire to expand its market presence, gain access to new technologies, eliminate competition, or diversify its product or service offerings.

  • Friendly Acquisition: Occurs with the consent and cooperation of the target company’s management.
  • Hostile Takeover: Takes place when the acquirer bypasses the target company’s management and directly approaches its shareholders.

Example: If a technology company acquires a smaller startup with innovative software, the acquiring company can quickly integrate the new technology into its existing product lineup or enter a new market segment.

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Organisational structure

Organizational structure refers to the framework that defines how activities, tasks, and responsibilities are organized, controlled, and coordinated within an organization. It defines the hierarchy of authority, the reporting relationships, and the distribution of responsibilities in order to achieve the organization’s objectives. Organizational structure influences the flow of information, decision-making processes, and communication channels within a company.

Functional Structure: Organized based on specialized functions or roles, such as marketing, finance, operations, and human resources.

  • Advantages: Specialization, efficiency in functional areas, clear career paths.
  • Disadvantages: Limited communication between functions, potential for slow decision-making.

Divisional Structure: Organized around products, projects, or geographic locations. Each division operates as a separate entity with its own functional departments.

  • Advantages: Flexibility, focus on specific markets or products, better adaptation to changes in the external environment.
  • Disadvantages: Duplication of functions, potential for competition between divisions.

Matrix Structure: Combines elements of both functional and divisional structures. Employees have dual reporting relationships – to functional managers and project or product managers.

  • Advantages: Flexibility, efficient use of resources, expertise from different functional areas.
  • Disadvantages: Complexity, potential for power struggles, confusion in reporting relationships.

Hierarchical Structure: Traditional and widely used structure with clear lines of authority and a pyramid-like hierarchy.

  • Advantages: Clear chain of command, well-defined roles and responsibilities.
  • Disadvantages: Slow communication, rigid decision-making, potential for bureaucracy.

The choice of organizational structure depends on various factors, including the size of the organization, its industry, the nature of its work, and its strategic goals. Organizations may also adopt a hybrid structure that combines elements of different types to suit their specific needs.


Published by Active Learning, Dec 2023