CONTENIDO DE LA OFERTA

When any limited company is formed, the promoters have to file certain documents with the Registrar of Joint Stock Companies and obtain a Certificate of Incorporation. The main documents are the Memorandum of Association which sets out the objectives of the company, its capital, borrowing powers and name; and the Articles of Association which cover points like the powers of directors, rules for issuing and transferring shares, arrangements for company meetings and other internal affairs. A public company also produces a prospectus setting out the terms on which it offers its shares and the history of the firm and its prospects.

Finance

Companies issue different classes of share in order to appeal to different types of investor. Shareholders receive dividends, which represent a percentage of the profits. Companies also borrow by issuing debentures, which represent a loan to the business and which receive interest at a fixed rate. A public company can offer its securities direct to the public or place them with investing institutions. The institutions also buy shares on the Stock Exchange, which deals in second hand shares and debentures. Investors in public companies have the added security of knowing that they can sell their shares freely at any time through the Stock Exchange. Shareholders in private companies do not have this advantage.

The types of security are:

 Ordinary shares – which receive a dividend determined by the Board of Directors according to the size of the profits. Ordinary shareholders are the owners of the company and each share entitles them to one vote at company meetings.

 Preference shares – which receive a fixed rate of dividend before any other class of shareholder is paid anything. Some preference shares have the benefit of being cumulative, which means that any unpaid dividends are carried forward until there is enough profit to cover them.

 Debentures – which are stocks, not shares, and represent a loan to the company. They are not part of the share capital. Debenture holders are creditors of the business and receive a fixed rate of interest; they take no part in running the company.

Structure

Companies are controlled by their owners, the ordinary shareholders, who can vote at the Annual General Meeting to appoint or remove the directors who manage the business. Directors may be executive, responsible for specific functions, or non-executive, representing the general interest of the shareholders. The voluntary code of corporate governance set out by the Cadbury Committee advises all plcs to have non-executive directors who can take an independent view of the management.

The structure, functions and interrelationships of a joint stock company are shown in a basic form in Figure 2.1.

Figure 2.1: General Structure of a Limited Company

SHAREHOLDERS

Own the assets of the firm. Have limited liability.

Ordinary Shares

Voting rights to elect directors.

Preference Shares

Fixed dividend paid before ordinary share dividends.

BOARD OF DIRECTORS

Run the business, formulate policy, look after shareholders' interests.

CHAIRPERSON

Chairs board meetings and delivers Annual Report.

MANAGING DIRECTOR

Responsible for the running of the firm.

DEPARTMENT MANAGERS

Managers in charge of the various departments of the firm, e.g. production,

marketing, personnel, accounts, administration, research.

You should note the following aspects of this structure:

 The shareholders (who may hold ordinary, preference or both types of shares) are the owners of the firm.

 The Board of Directors is responsible for: (a) Formulating policies.

(b) Ensuring that these policies are implemented.

(c) Ensuring that the enterprise has an appropriate structure and sufficient resources to achieve its objectives.

(d) Ensuring that the company operates within the law of the country. (e) Looking after the interests of the shareholders.

The Board of Directors may be made up of both full- and part-time directors. Normally full-time directors will be responsible for the running of certain important areas of the firm, such as accounts/finance, production, marketing, etc. These directors can appoint managers to assist with the running of the firm.

Part-time directors (non-executive) have sometimes been criticised as expensive passengers, being paid their fees just to add a reputable name to the list of directors. It is argued that their time is limited and that their outside interests distract from their commitment to the firm, whereas full-time directors' total commitment to the one firm ensures loyalty and they can see their ideas followed through from planning to execution

However, it is often the case that non-executive directors perform a valuable role. Firstly, because of their part-time status they can take a more impartial view of the firm and act as referees when there are disputes between various parts of the organisation. In addition, many non-executive directors are experts in their own right – for example, lawyers, accountants, property specialists – who can provide specialist advice as well as offering valuable business contacts that can be used to assist the firm.

 The Chairperson is the head of the Board of Directors. He or she chairs the board meetings and delivers the annual company report. Although a chairperson is

sometimes part-time, he or she is normally a very experienced business person who can guide the board and obtain the best contribution from the other directors.

 Next we come to the Managing Director. This is a position of considerable power and responsibility; the Managing Director sees to it that the policies and decisions of the board are translated into actual performance. The Managing Director runs the

company through his or her department managers (some of whom may be directors). Each of the department managers has charge of an important area of the organisation.  Finally we have the department managers. Some important departments may be

managed by full-time directors with non-director managers to assist them. The crucial point is that all key departments must have a person in charge and responsible to the Board of Directors.

Note, too, the way in which the elements are interrelated.  Shareholders and directors

There is a two-way link between these two groups: ordinary shareholders have voting rights to elect directors, while directors have the responsibility of looking after the interests of all shareholders.

 Chairperson and Managing Director

In many companies the Chairperson may be selected from the non-executive directors; in other companies the roles of Chairperson and Managing Director are combined in a single person, sometimes known as an "Executive Chairperson". Even when the roles are separate there has to be a good working relationship between the Chairperson and Managing Director.

 Directors and departmental managers

Again these are roles which can sometimes be combined: functional directors can manage a given department while successful managers may be appointed to the board and become directors.

Advantages and Disadvantages

The advantages of the public limited company (plc), the dominant form of company in the commercial sector, are as follows:

 The company enjoys the legal status of incorporation, which means that it has an existence and identity apart from the people who set it up and those who work in it. Shareholders, directors and employees may retire or die, but the company lives on.  There is continuity of succession, because the continuation and legal standing of a

company are not affected by the death of a member or withdrawal of a director.  Companies have a separate legal entity from the shareholders who, therefore, cannot

be sued for the actions of the company.

 Those who invest in limited companies have limited liability so may be more ready to take a limited risk.

 Ownership is largely separate from control, so the company may be run by professional managers who, if they fail to perform well, can be replaced. Investors can put money into shares without taking any responsibility for running the company.

 Large amounts of capital can be raised from large numbers of investors, especially for new and more risky ventures. (But private companies can approach only a limited number of members.)

 Stocks and shares can easily be transferred so that investors can recover their capital.  The larger scale of operations of public companies and larger private companies

makes it possible to employ specialist managers.

 Control of a company is obtained by owning 51% of its ordinary shares, so that it is possible to build up large groups of companies through a holding company which holds shares in the subsidiaries.

Whilst these advantages are strong, you should recognise that there are downsides to this form of business organisation.

 The procedures for setting up a company are costly and complicated compared to starting other forms of enterprise.

 Detailed annual accounts have to be prepared, audited and submitted to the Registrar, an Annual Report made to shareholders and a register of shareholdings has to be maintained. (Smaller companies, in terms of turnover, have a lesser burden in this respect.) The publication of such financial and other information may assist competitors.

 Shareholders have little control in practice, as individual shareholdings tend to be small and most shares are held by the investing institutions and unit trusts, which have rarely taken an interest in the management of the firms in which they hold shares.

 Small and new companies may find it difficult to borrow or get credit because lenders know that limited liability may make it impossible to get their money back.

 Managers are unlikely to put in as much effort as the sole trader or partners. Incentive schemes for directors and senior managers have been severely criticised as too generous, and the Cadbury Committee recommended that non-executive directors should decide pay and incentives for these senior people.

 Professional managers may put their interests and careers before the interests of the shareholders, indulging in "empire building" and drawing high salaries and expenses not fully justified by their performance.

 Companies may become large and bureaucratic, which can lead to a slow response to change or new opportunities.

 Public companies are vulnerable to take-over bids from rivals who make an offer to buy their shares.

F. PUBLIC SECTOR ORGANISATIONS

The public sector includes nationalised industries (public corporations), local government bodies, government agencies, and quangos – quasi-autonomous non-government organisations responsible to a government minister.