CORPORATE ORGANISATION (COMPANIES)

The Gambia Companies Act 2013 governs the incorporation, management and other
matters relating to companies in The Gambia. The Single Window Business
Registration Act provides for the registration of businesses including companies.

Private and Public Limited Companies

These are the two major private corporate organisations whose generic features
differentiates between private limited companies, which must have "Limited" or "Ltd" in
their names and public limited companies which are required to include the letters plc.
Both types of company are owned by their ordinary shareholders, who hold the "equity"
in the company. This is why ordinary shares are also called "equities". The liability of
the shareholders is limited to their shareholding. Thus the maximum amount that they
can lose is what they paid for the shares.
The main differences between private limited companies and plcs are as follows:
 Shares in private companies can only be traded with the agreement of the
shareholders and they cannot be offered to the general public.
 Shares in public companies can be offered to the general public and are often,
though not always, freely traded on stock exchanges.
 A private company must have at least two shareholders while a public company
must have at least seven.
 A private company must have at least one director (two if the Company
Secretary is a director) and a public company must have at least two directors.

What does 'limited liability' mean?

The basis of a limited liability company is that all debts incurred by a company are the
company's liabilities and are not directly the legal liabilities of the company's shareholders
or directors. The directors of a limited liability company do not incur personal liability as all
their acts are undertaken as agents for the company.
However, liability may be imposed on directors in the event of wrongful or fraudulent
trading, ie if a director acts in an inappropriate manner (eg using fraudulent methods to
pay creditors, overpaying themselves, using company funds for their personal benefit, etc).

Private Limited Company

What does Ltd. stand for? A private Ltd. company is owned by a small group of entities or
individuals with strict control of the businesses. What is Ltd.? Ltd. stands for limited
company. A private limited company is defined by the number of shareholders, the liability
of owners, and trading stocks. Like other companies, private limited companies must
submit financial statements every financial year.

What exactly is the meaning of Ltd.? The essential characteristics of a limited company
are as follows:

 The owners of a private company have limited liability.

 The owners have separate legal entity and the company is also a legal entity
 The company's liability cannot be assumed as theirs.
 A Ltd. company has a limited number of shareholders.
 The owners are not allowed to sell shares/stocks publicly, they must go through
stock exchange market through jobber and broker.
 The number of owners is limited to fifty shareholders.

In general private companies are smaller businesses with much less capital than
public companies. The advantage of forming a private company is that one can raise
more capital with limited liability while still retaining control. Many are family
businesses and most professional clubs are private companies.

Public Limited Company (PLC)

A public limited company, or 'PLC' for short, is a company that is legally allowed to
offer its shares for sale to the public. They don't have to offer shares to the public if
they choose not to, but the option is there if and when needed. It is a company that
has the legal status of a firm which can offer shares to members of the general
public. This mean a PLC company share is presented to the general public and can
be purchased or claimed by any individual, either privately during the process of the
initial public offering or via trades on the stock exchange market. Public limited firms
are also known as publicly held companies.
A public limited company has many benefits when it comes to operations and
profitability. One of such benefits is the increased ability of such a firm to raise capital
financing via selling public shares. Selling shares to the public in this situation means
that there is no entry barrier to investing in such a firm, and as such, any person can
choose to join the company. Also, if the company is listed on a stock exchange
market, it can increase their potentials of being targeted by hedge funds, venture
capitalists, mutual funds, and other types of traders and investors. Being a PLC also
means that the risk of running a business is spread out. By giving people the ability to
buy into the business, the PLC is also giving them the opportunity to buy into the risk,
thus reducing the risks which the Public Limited Company shoulders. PLCs also
allows for big development and growth directives, and this can result in faster
expansion and clients satisfaction.
Just like every other thing in finance, a Public Limited Company also has its own
disadvantages. For example, PLCs are subject to more stringent regulations which
might reduce their creativity in the way they operate or manage sales. A PLC is
required to have a minimum of two directors and they're mandated to hold meetings
on an annual basis (AGMs). Also, companies with this status are required to maintain
a high level of transparency when it comes to issues concerning accounting and
auditing. Due to the fact that they're public, companies with this status are vulnerable
to hostile takeovers, corporate raiding, and they also require substantially huge
financial contributions to maintain their operations and prevent themselves from
going bankrupt. 

Formation of a Company
When any limited company is formed, the promoters have to file certain documents
with the Registrar of Companies and obtain a Certificate of Incorporation. The main
documents are the Memorandum of Association which sets out the objectives of the
company, its meant to serve external purpose, its capital, borrowing powers and
name; and the Articles of Association which is meant for internal essence, 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 requires all plcs to have non-executive directors who can take
an independent view of the management.
The structure, functions and interrelationships of a company are shown in a basic
form:
 General Structure of a Limited Company

SHAREHOLDERS
Own the assets of the firm.
Have limited liability.

Preference Shares Ordinary Shares

Fixed dividend paid before Voting rights to elect
ordinary share dividends. directors.

BOARD OF DIRECTORS
Run the business, formulate
policy, and 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..
 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.