FORMS OF BUSINESS ORGANISATION(continued)…..

1. The Corporation (or Company): A company is made when 2 or more people join together as promoters (owners) to do a business and issue shares to the public to get capital and give them ownership into the business.

For example, four people contribute 400 AFs to the share-capital of the ABCL Co.and start it.

It is different from the partnership because a Company has a separate identity in eyes of the law and all owners have limited-liability.

This Company does business in its own name but because it does not have physical existence (physical body) like human-beings, the work is done by owners or management of the company.

The Corporation (continued)….

Procedure to form a company is different from that of a partnership.

1. Promoters (people who start the company) contribute some money each and make the prospectus of the company. This prospectus has details like:

*name of the company.*name and addresses of promoters of company*how much money each promoter is contributing to start the company*place of business , e.g. Kabul, Herat, etc.*type of business e.g. computer-making,etc.*the rules and regulations to run the company

2. The promoters then send the prospectus of the company to the local-authority.

3. The authority checks:* if the business if legal* if the name being used for the new company has already been trademarked by any other company* any other things which could be a problem

The Corporation (continued)….

4. If the authority is satisfied with the prospectus they register the name of the company in their register and from that day the company is said to have BORN.This means that the company can now do business in its own name with the help of the promoters (owners) and management.

The Corporation (continued)….

Important terms used in study of Company form of business:

1. A share is a certificate of specific monetary value (e.g. 300 AFs) which makes the holder of this paper, one of the owners of the company.

Holder of share-certificates expect yearly earnings in form of DIVIDENDS from the company.

Suppose, Rehmat buys 2 share in ABCL Co. for 100 AF . The company makes profit in this year and the company management declares a dividend of 10AF pershare. This means Rehmat will get 20AF as his dividends for this year.

2. DIVIDENDS are yearly income received by share-holders of a company.

The Corporation (continued)….

The concept of shares helps both the company and common people in followingmanner:1. company can get funds (finance) whenever it needs by issuing shares to people.2. people who have some money can buy these shares and get dividends aslong as they keep the shares with them.

Generally, companies pay dividends yearly.

NOTE : When a person buys shares of a company he gets:

1. ownership in the company2. right to receive dividends from profits of the company (when the management of the company declares the dividends).

The Corporation (continued)….

Features of a Company:1. It has a separate existence than the owners and the management. That meansthe company can possess assets in its own name and do business in its own name.

When we say the Accounts of ABCL Co., it means that these accounts areseparate from the personal accounts of the owners, managers and employees of this company.

2. Limited liability of all owners of the company. For example, if the company is notable to repay debts to creditors, they can only sell the assets of the company to get their money back. The creditors cannot ask owners or management of the company to pay from their personal property.

3.Company can get huge amounts of funds (finance) from the market by issuing shares.

4. Even when some shareholders die or sell their shares to some other people, theCompany continues to exist (unlike the partnership which comes to an end as soonas one partner dies or leaves the partnership).

The Corporation (continued)….

5. A Company can only be destroyed by following the legal-procedure stated in the corporate-laws of the country. This is called the Winding-up of thebusiness of the company.

6. Shareholders of company can sell their shares back to the company or in the stock-exchanges. This enables easy transferability of ownership of the company without too much legal procedures.

A stock-exchange is a place authorised and licensed by the Government to enable shareholders of Companies (that have been listed on the stock-exchange) to buy and sell shares of those companies.

Famous stock exchanges of the world are;1. NYSE (New York Stock Exchange) in USA.2. BSE (Bombay Sotck Exchange) in India3 LSE (London Stock Exchange) in London

TYPES OF SHARES IN A COMPANY-

There are 2 type of shares commonly issued by companies:

1. Common shares (or common stock) – The holders of these shares cannot force the company management to pay dividends. This means that if the management thinks the company does not have enough funds to pay dividends the common shareholders cannot force them.

Also, the company management is free to decide the amount of dividends to be paid per share in a year.

2. Preference shares (or Preferred Stock) – The preference share-certificates always mention the rate at which dividends will be paid to the holders of these

certificates. For example, if Ali buys a preference share-certificate of value 100 AFs which mentions that company shall pay dividend at the rate of 10% per year.

Then Ali shall get 10AFs each year when the company pays dividend.

It should again be noted that the preference-shareholder cannot force the company management to pay dividends. But if dividends are paid out, the company first gives the fixed percentage to preference-share-holders and then distributes the remaining profits to the common-shareholders.

So preferred shareholders are given preference in dividend payments over the common-shareholders.

If a share-certificate does not specify whether it is common or preference , we assume it is a common-share certificate.

There are 3 types of companies:

1 Public Companies : Those companies which invite application for shares from the public are called public companies.

The names of public companies could be like this:1. ABC Company2. ABC Company Limited3. ABC Corporation4. ABC Corporation Limited5. ABC Incorporated

The words in the names of a company can be sometimes shortened as:

Co. for CompanyCorp. for CorporationInc. for IncorporatedLtd. for Limited

2 Private Companies : Those companies which do not invite application for shares from the public are called private companies.

For example, 2 friends start the company and contribute share capital. They do not invite anybody from outside to buy the shares. This is a private company.

The names of private companies could be like this:1. ABC Private Limited2. ABC Company Private Limited3. ABC Corporation Private Limited4. ABC Incorporated Private Ltd.

A private company always uses the word ‘PRIVATE’ in its name.

3 Government Companies : A Company in which all shares are in the hands of the Government is called a Government Company.

A Government company can use all formats of names used by the public companies but they put the word ‘GOVERNMENT’ or ‘AUTHORITY’ in the name of the company so that people could understand that this is a Government company.