Business

Organization-1

Factors to Consider when

selecting a Businesss 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 organizations earning

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