Business Organization-1

Factors to Consider when

selecting a Business’s Form
• Significant factors to consider in selecting
the best organizational form for a
particular business activity include:
– The cost of creating the organization
– The continuity or stability of the organization
– The control of decisions
– The personal liability of the owners
– The taxation of the organization’s earning and
its distribution of profits to the owners
 Selecting the Best
Organizational Form
• These are the different forms of business
entities you can choose from:
– Sole proprietorship
– Partnership
(i) Company limited by share.
- Public Ltd.
- Private Ltd.
(ii) Company limited by guarantee.
(iii) Unlimited company
 Sole Proprietorship

• The most natural and simplest form of business.

• Single person runs the business the way he likes,
with:
– low operational costs,
– without interference from others.
 Single Member Company (SMC)

• Owned by a single person.

• Any company registered as Single Member
under Company law 2003 as a single
member company.
• Or any private company changed its status
to SMC according to Company law 2003.
• All the rules and regulation of Company
ordinance applied to SMC, similar to private
company.
 Single Member Company (SMC)

• Concept of (SMC) was first introduced by

European Union in 1992.
• Pakistan is the pioneer country in Asian
countries to introduce and adopt the novel
concept of a Single Member Company.
• The Securities and Exchange Commission of
Pakistan (SECP) has finalized the Companies
Rules, 2003 to set forth the laws regulating
a Single Member Private Limited Company.
 Formation of Single Member
Company
• Any person/company can formed company
as per Company ordinance 1984 and Single
member company law 2003.
• Following procedure for registering SMC
– File with the registrar at the time of incorporation
as SMC
– Documents similar to private company.
– Form S1:Indicating at least two individuals to act
as nominee director and alternate nominee
director in the event of his death.
 Core Objective for SMC

• Core Objective:
– To facilitate sole proprietorships to avail
corporate status.
– Extended Advantage of limited liability
– Rights and privileges of a distinct legal entity.
– To stimulate documentation of the economy.
– Proper documentation of decisions taken,
Such documentation would avoid future
disputes.
 Benefits of Single Member
Company
• (a) a distinct legal entity, separate from single
member
• (b) limited liability of the member
• (c) elevated entity status, long life of enterprise
having perpetual succession
• (d) compact organizational structure
(e) defined legal frame work
• (f) part of documented and regulated sector
• (g) simple corporate record
 Benefits of Single Member
Company
• (h) enhanced authority, responsibility and accountability
leading to high level of credibility:
• (i) protection of personal assets
• (j) transferability of ownership/shares
• (k) agency relationship, relation between company and
single members would be that of principal and agent
• (l) better access to capital markets
• (m) easy to raise funds, and
• (n) Receive tax advantages on certain payments, such
as insurance, lease rentals and other expenses being
tax-deductible.
 Private Company to SMC

• Not any private company becomes SMC,

after reducing its member to one without
following the rules mentioned in the
company law 2003.
• Private Limited Company shall mutatis
mutandis (Making the necessary
alteration) apply to a single member
company.
 Partnerships
• Whenever two or more people wish to start a
business together is called Partnership.
• Partnership is an agreement between two or
more persons to share a common interest in a
commercial endeavour and to share profits and
losses
• When compared to other form of business
organization a partnership is easily formed
• In addition the creation of a partnership is made
by two or more persons with common business
interest and sharing profit and loss
 Corporations
• A corporation is an artificial, intangible
entity created under the administrative
authority of the Government
• The corporation is more complex to create
and to operate then other form of business
• The legal complexities are associated with
structure of corporation
• A corporation is created through a
legislation by the Government
 Limited Partnerships
• A Limited Partnership is basically all the attributes
of partnership except that one or more of the
partners are designated as Limited Partner
• This type of partnership is not personally
responsible for the debts of the business
organization
• A Limited Partnership is created by an agreement
• The term of the Partnership Agreement control
the management of the organization
• Follower of the parties to state their agreement
clearly may result in a court interpreting the
limited partnership agreement
 Company Limited by Share
• Company Limited by Share Liability of its members is limited
upto the extent of their share to paid upto capital of the
company. These companies may further be classified as
public limited and private limited companies.

– Public Limited Companies can be formed by at least seven

persons by subscribing their names to the 'Memorandum
& Articles of Association' of the company. The word
'Limited' must be used as the last word of its name.

– Private Limited Companies may be formed by at least two

persons by subscribing their names to the 'Memorandum
and Articles of Association' of the company.

– Private Limited Company is required to use the words

"(Private) Limited" as the last words of its name.
Company Limited by Guarantee

– Means a company having the liability of its

members limited by memorandum to such
amount as the members may respectively
undertake to contribute to the share capital of
the company in the event to its winding up.
– The company limited by guarantee is usually
formed on a 'no profit basis'.
– Guarantee limited companies must use the
words "(Guarantee) Limited" as the last words
of their name .
 Agency Principles

• The Agency Principles are used to

describe all the boards, bureaus,
commissions, agencies and organizations
that make up the Bureaucracy.
Thank You