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Nature & Scope of Business Organizations

(This is a very basic topic, do not go in much details)


Meaning of Business Organization
Business organization is composed of two words, business and organization. In
order to understand the nature of business organization, it is necessary that the
meaning of these two words is made clear to the readers.
(1) Business
Business is a human economic activity. It involves continuous and regular
production and distribution of goods and services with a view to earn profit.
Money flowing in and earning of profit through the satisfaction of the customers
are the two measuring rods of the success of a business.
(2) Organization
The meaning of the word organization is generally divided into two parts (i)
material organization and (ii) human organization.
(i) Material Organization
The material organization is the determining and providing of necessary raw
materials, tools, capital, personnel etc in an enterprise fonts smooth functioning.
(ii) Human Organization
It is the appointment of qualified staff, dividing the duties and re of the personnel
employed. Then grouping these duties in the form of posts and delegating
authority to each post so that work is carried out as planned.
Business Organization
Thus is a process or an art of establishing effective cooperation between the
factors of production (land, material, capital equipment. personnel) for producing
or acquiring wealth with a view to earn profit in an enterprise. Scope of business
organization. Business organization thus is a process or an art of establishing
effective cooperation between the factors of production (land, material, capital
equipment. personnel) for producing or acquiring wealth with a view to earn profit
in an enterprise.
Scope of Business Organization
The scope of business organization has considerably expanded after the Industrial
Revolution. The process of production is now quite complicated. An organization is
needed to determine what each person will do and how much authority each will
have. The role of business organization in various forms of business ownership is
discussed in brief.
(1) In Sole Proprietorship
Form of business, the organization structure is very simply. The entrepreneur
generally introduces his own capital. He alone is the sole organizer, financier,

decision taker, operator, and controller and above all responsible for air the
success and failures of business, there is generally rule sub-division of main work
into small groups.
(2) In a Partnership Form of Business
ownership, each partner provides capital, labour and management according to
an agreement the partners determine among themselves the extent to which
each partner shall take part in the management. The pattern of division of
activities, determination of responsibilities. Delegation of authority etc depends
upon the nature and size of business. As the partnership business is generally run
on small scale, the business organization structure is relatively simple, temporary
and informal.
(3) In a Company Form of Business
There is a formal pattern of organization. The work of organization begins even
before its incorporation by the promoters. This work of organization continues
after incorporation. An organization chart of responsibilities is prepared. The
duties and responsibilities of the personnel employed are defined, procedures are
aid down. Methods are evolved discussed and put before the personnel in clear
terms. The scope of business organization in corporate business is quite wide and
complicated.
Forms of Business Organization
Introduction
Business concerns are established with the objective of making profits. They can
be established either by one person or by a group of persons in the private sector
by the government or other public bodies in the public sector. A business started
by only one person is called sole proprietorship. The business started by a group
of persons can be either Partnership or Joint Stock Company or a Co-operative
form of organization.
Forms of business organization are legal forms in which a business enterprise
may be organized and operated.
These forms of organization refer to such aspects as ownership, risk bearing,
control and distribution of profit. Any one of the above mentioned forms may be
adopted for establishing a business, but usually one form is more suitable than
other for a particular enterprise. The choice will depend on various factors like the
nature of business, the objective, the capital required, the scale of operations,
state control, legal requirements and so on.
Sole Proprietorship
Meaning: A sole proprietorship or one mans business is a form of business
organization owned and managed by a single person. He is entitled to receive all
the profits and bears all risk of ownership.
Features:
The important features of sole proprietorship are:

The business is owned and controlled by only one person.

The risk is borne by a single person and hence he derives the total benefit.

The liability of the owner of the business is unlimited. It means that his
personal assets are also liable to be attached for the payment of the
liabilities of the business.

The business firm has no separate legal entity apart from that of the
proprietor, and so the business lacks perpetuity.

To set up sole proprietorship, no legal formalities are necessary, but there


may be legal restrictions on the setting up of particular type of business.

The proprietor has complete freedom of action and he himself takes


decisions relating to his firm.

The proprietor may take the help of members of his Family in running the
business.

Advantages
Ease of formation: As no legal formalities are required to be observed.
Motivation: As all profits belong to the owner, he will take personal interest in the
business.
Freedom of Action: There is none to interfere with his authority. This freedom
promotes initiative and self-reliance.
Quick Decision: No need for consultation or discussion with anybody.
Flexibility: Can adapt to changing needs with comparative ease.
Personal Touch: comes into close contact with customers as he himself
manages the business. This helps him to earn goodwill.
Business Secrecy: Maintaining business secrets is very important in todays
competitive world.
Social Utility: Encourages independent living and prevents concentration of
economic power.
Disadvantages
Limited resources: one mans ability to gather capital will always be limited.
Limited Managerial Ability
Unlimited Liability: Will be discouraged to expand his business even when there
are good prospects for earning more than what he has been doing for fear of
losing his personal property.
Lack of Continuity: uncertain future is another handicap of this type of
business. If the sole proprietor dies, his business may come to an end.
No Economies of Large Scale: As the scale of operations are small, the owner

cannot secure the economies and large scale buying and selling. This may raise
the cost of production.
Suitability of Sole Proprietorship Form
From the discussion of the advantages and disadvantages of sole proprietorship
above, it is clear that this form of business organization is most suited where:

The amount of capital is small

The nature of business is simple in character requiring quick decisions to


be taken

Direct contact with the customer is essential and

The size of demand is not very large.

These types of conditions are satisfied by various types of small business such as
retail shops, legal or medical or accounting profession, tailoring, service like dry
cleaning or vehicle repair etc. hence sole proprietor form of organization is mostly
suitable for these lines of businesses. This form of organization also suits those
individuals who have a strong drive for independent thinking and highly venturous
some in their attitude.

Partnership

Introduction:
Generally when a proprietor finds its difficult to handle the problems of
expansion, he thinks of taking a partner. In other words, once a business grows
beyond the capacity of a sole proprietorship and or a Joint Hindu Family, it
becomes unarguably necessary to form partnership. It means that partnership
grows out of the limitations of one-man business in terms of limited financial
resources, limited managerial ability and unlimited risk. Partnership represents
the second stage in the evolution of ownership forms.
In simple words, a Partnership is an association of two or more individuals who
agree to carry on business together for the purpose of earning and sharing of
profits. However a formal definition is provided by the Partnership Act of 1932.
Definition
Section 4 of the Partnership Act, 1932 defines Partnership as the relation
between persons who have agreed to share the profits of a business carried on by
all or any of them acting for all
Features of Partnership
simple procedure of formation: the formation of partnership does not involve
any complicated legal formalities. By an oral or written agreement, a Partnership
can be created. Even the registration of the agreement is not compulsory.
Capital: The capital of a partnership is contributed by the partners but it is not
necessary that all the partners should contribute equally. Some may become

partners without contributing any capital. This happens when such partners have
special skills, abilities or experience. The partnership firm can also raise additional
funds by borrowing from banks and others.
Control: The control is exercised jointly by all the partners. No major decision
can be taken without consent of all the partners. However, in some firms, there
may partners known as sleeping or dormant partners who do not take an active
part in the conduct of the business.
Management: Every partner has a right to take part in the management of the
firm. But generally, the partnership Deed may provide that one or more than one
partner will look after the management of the affairs of the firm. Sometimes the
deed may provide for the division of responsibilities among the different partners
depending upon their specialization.
Duration of partnership: The duration of the partnership may be fixed or may
not be fixed by the partners. In case duration is fixed, it is called as partnership
for a fixed term. When the fixed period is over, the partnership comes to an end.
Unlimited Liability: The liability of each partner in respect of the firm is
unlimited. It is also joint and several and, therefore any one of the partner can be
asked to clear the firms debts in case the assets of the firm are inadequate for it.
No separate legal entity: The partnership firm has no independent legal
existence apart from that of the persons who constitute it. Partnership is
dissolved when any partner dies or retires. Thus it lacks continuity.
Restriction on transfer of share: A partner cannot transfer his share to an outsider
without the consent of all the other partners.

Advantages
ease of formation: partnership can be easily formed without expense and legal
formalities. Even the registration of the firm is not compulsory.
large resources: when compared to sole-proprietorship, the partnership will have
larger resources. Hence, the scale of operations can be increased if conditions
warrant it.
better organization of business; as the talent, experience, managerial ability
and power of judgment of two or more persons are combined in partnership,
there is scope for a better organsation of business.
greater interest in business: as the partners are the owners of the business
and as profit from the business depends on the efficiency with which they
manage, they take as much interest as possible in business.
prompt decisions: as partners meet very often, they take decisions regarding
business policies very promptly. This helps the firm in taking advantage of
changing business conditions.
balanced judgement: as partners possesses different types of talent necessary
for handling the problems of the firm, the decisions taken jointly by the partners
are likely to be balanced.
flexibility: partnership is free from legal restriction for changing the scope of its
business. The line of business can be changed at any time with the mutual
consent of the partners. No legal formalities are involved in it.
diffusion of risk: the losses of the firm will be shared by all the partners. Hence,
the share of loss in the case of each partner will be less than that sustained in
sole proprietorship.
protection to minority interest: important matters like change in the nature of
business, unanimity among partners is necessary hence, the minority interest is
protected.
influence of unlimited liability: the principle of unlimited liability helps in two
ways. First, the partners will be careful in their business dealings because of the
fear of their personal properties becoming liable under the principle of unlimited

liability. Secondly, it helps the firm in raising loans for the business as the
financers are assured of the realization of loans advanced by them.

Disadvantages.
great risk: as the liability is joint and several, any one of the partners can be
made to pay all the debts of the firm. This affects his share capital in the business
and his personal properties.
lack of harmony: some frictions, misunderstanding and lack of harmony among
the partners may arise at any time which may ultimately lead to the dissolution.
limited resources: because of the legal celing on the maximum number of
partners, there is limit to the amount of capital that can be raised.
no legal entity: the partnership has no independent existence apart from that of
the persons constituting it, i.e it is not a legal entity.
instability: the death, retirement or insolvency of a partner leads to the
dissolution of the partnership. Further even any one partner if dissatisfied with
the business, can bring about the dissolution of partnership. Hence partnership
lacks continuity
lack of public confidence: no legal regulations are followed at the time of the
formation of partnership and also there is no publicity given to its affairs. Because
of these reasons, a partnership may not enjoy public confidence.
sustainability: the advantages and drawbacks of partnership stated above
indicate that the partnership form tends to be useful for relatively small business,
such as retail trade, mercantile houses of moderate size, professional services or
small scale industries and agency business.
But when compared to sole proprietorship partnership is suitable for a business
bigger in size and operations.

Joint Stock Company


In the modern times the business and industry has been developed on a large
scale the capital required for such industry and trade is huge which cannot be
accumulated either in a sole proprietorship or a partnership organization. As a
result of this change, a new form of organization has become quite popular in
modern times which are known as Joint Stock Company. It is normally defined as;
An association of many person who contribute money or moneys worth to
common stock or employ it in some trade and business, and who share profit or
loss arising from there.
It means the joint stock company is a voluntary association of individual who
contribute their money or profit to a common stock for carrying on a particular
business. The money or moneys worth contributed by the member known as
share holders forms the capital of the company. The capital is divided into
numbers of unit called share. Each share carries definite face value and is
transferable in the market without any restriction or formalities.
A company as soon as incorporated takes a legal entity distinct from the share
holder who composes it. It is managed by a group of persons known as directors.
Directors are the representatives of share holders.
Formation of Joint Stock Company
All the joint stock companies whether public or private are governed by the

companys ordinance 1984 and must be formed according to the procedures laid
down in that act. For the formulation of Joint Stock Company the following
document must be submitted to the registrar, joint stock Company;
1. The list of directors along with their address.
2. the memorandum of association on which at least 7 person, who are
promoters should sign in case of public limited company and two in case of
private limited company. In addition of this it is also essential for the, to purchase
the qualification share.
3. Articles of association duly signed as memorandum of association.
4. The consent of all the directors to act as directors.
5. A formal declaration by the secretary that all the formalities are duly
completed.
6. A statement of normal capital.
Along with the above documents, registration fees, which varies with the
amount of share capital is paid off to the treasury.
When the registrar of the joint stock companies is satisfied from all the formalities
he will enter the name of the company in the register and will issue a certificate
of incorporation. Now the company will have its separate existence.

Advantages of a Joint Stock Company


1. Huge Amount of Capital
It is in a position to raise large amounts of capital required for big business. The
reasons are the limitations of liability and the ease of transferability of shares.
The small value of shares allows a large number of persons to invest. So, due to
limited liability and issuance of shares, large capital may be raised by a Joint
Stock Company.
2. All People can Invest
In a Joint Stock Company, the shares are of different kinds so they are purchased
by persons of different temperaments. The small value of shares allows the poor
people also to purchase it. Besides, a company may also raise finance by the
issue of debentures and bonds.
3. Limited Liability of Shareholders
The liability of shareholders is limited. It means that the risk is spread over a
large number of shareholders and the possibility of hardship on a few is reduced.
Secondly, if the business is going to be lost, the shareholders are not liable to
loose anything from their private property.
4.Professional management
Management of a company is in the hands of the directors, who are elected

democratically by the members or shareholders. These directors are known as the


"Board of Directors". They manage the affairs of the company and are
accountable to all the investors. So, the investors elect capable persons who have
sound financial, legal and business knowledge to the board so that they can
manage the company efficiently.
5. Stability of Business
The success of business also depends upon the life of the business. The Joint
Stock Company is more suited in tis respect, for a company is a legal person
having a perpetual succession.
6. Large-scale production
Since there is an availability of large financial resources and technical expertise, it
is possible for the companies to have "large-scale" production. This enables the
company to produce more efficiently and at a lower cost.
7.Research and development
Only in joint stock company form of business, it is possible to invest a lot of
money on research and development so that new design, better quality products,
etc. Can be achieved.

Disadvantages of a Joint Stock Company


1. Difficult to form:
The formation & registration of joint stock company involves a long and
complicated procedure. A number of legal documents and formalities have to be
completed before a company can start business. The process of formation
requires the services of specialists such as chartered accountants, company
secretaries, etc. Because of all this, the cost of formation of a company is very
high.
2. Excessive government control:
Joint stock companies are regulated by government through the Companies Act
and other economic legislations. Especially, public limited companies are required
to complete various legal formalities as provided in the Companies Act and other
legislations. Non-compliance with these causes a heavy penalty. This affects the
smooth functioning of the companies.
3. Delay in policy decisions:
Generally policy decisions are taken at the Board of Directors meetings of the
company. Further, the company has to fulfill certain procedural formalities. These
procedures are time consuming and therefore, may delay action on the decisions.

Promotion (Memorandum of
Association) & Management (Article of
Association)
Memorandum of Association

The first thing in the formation of a Joint Stock Company is the preparation of the
Memorandum of Association. It is a document, which sets out the constitution of
the company and as such, is really the foundation on which the structure of the
company rests. That is why this document has often been called the charter of
the company in its relation to the outside world. The document is prepared by the
promoters of the company. The memorandum of Association must contain the
following clauses:
1. Name Clause
In this clause the full name of the company is shown and the last word of the
name of the company must be limited. The company can adopt any name but
there are certain restrictions and the words like ROYAL, IMPERIAL, EMPIRE and
ESTATE etc cannot be used without the special permission of the Government.
2. Object Clause
This clause is quite important and must be very carefully drafted as it determines
the activities of the company. In the object clause each and every detail of
activities of the business to be carried out must be laid down. Once the object
clause is completed, it become very difficult to make any amendment. The value
of the shares, the allotment money must be given in detail.
3. Situation Clause
This act provides that the company must have a registered office so that the
registrar may be able to send notice etc. to the Company at the registered office.
4. Liability Clause
A declaration that shares holder's liability is limited.
5. Capital Clause
This clause must contain a statement as to the amount of capital with which the
company proposes to be registered and the division there of into shares at a
certain fixed amount.

Articles of Association
This is another important document, which must be prepared and filed with the
Registrar of the companies. The Article of Association contains rules and
regulations regarding the internal working and management of the company. It
defines the powers, rights and duties of Directors, shareholders and the other
officers of the company. The purpose of the Article of Association is to carry out
the objects set out in the Memorandum. The Memorandum limits the jurisdiction
beyond which the Article of Association cannot go. The Article of Association
states how the general meetings are to be held, how the voting is to be
transferred, and how they are to be forfeited, how the accounts are to be kept
etc. If a company does not prepare its Article of Association, it can adopt of Table

A of Companies Ordinance.
The articles must be properly drafted, serially numbered and printed and then
filed with the Registrar of the Joint Stock Companies. The article must be signed
by the subscribers and witnessed as in the case of Memorandum. It is usual to
print the Memorandum and the Article in one booklet, as the company is required
to provide the copies to members on request. The articles can be altered at any
time by special resolution.

Co-operative Societies

Concept
"A co-operative is a user owned and user-controlled business
that distributes benefits on the basis of use
Co-operation is a movement of people. It is essentially an activity of the people
for mutual help and collective progress.
Co-operation is an activity, where groups of people having common interests
come together and work for mutual benefit. The groups can organize themselves
to cater to diverse interests, from housing societies, to industrial production to
co-operative credit to massive co-operative banks.
It is fundamental right of a citizen to form an association. At the same time
voluntary membership is essence of Co-operation, Co-operative Society is not for
earning profits. Beneficiaries are the members, who work together and share
together.
Thus co-operation is a form of organization wherein persons voluntarily associate
together on the basis of equality for the promotion of their social and economic
growth.

Co-operation: Nature and Substance


The word co-operation is quite familiar to a common man. For him co-operation is
simple working together in any sphere of human activity. In this sense, the roots
of co-operation can be traced as far back as the beginning of human civilization.
The modern biologist have claimed that co-operation are the group instinct in
man which enabled him to live together, work together, and help one another in
times of difficulty, has been biologically one of the most important and vital
instincts.
It is true that some experts have highlighted man's progress in terms of
aggression. However, we have also evidence available from the writings of great
authorities like Propotkin who have stressed sociability to be as important a law of
nature as mutual struggle. In his Mutual Aid, he asserts that, the human society
has been sustained on the basis of mutual aid. H. G. Wells observed co-operative
action in nature while Nietzsche felt that there was antagonism at the heart of the
world. Broadly, on the basis of nature of things and course of development, one
can certainly conclude that despite competitive struggle for existence among
men, co-operation has contributed significantly as a force in the voluntary
development of man.
E. R. Bowell has rightly stated,

"Co-operation is a universal instrument of creation.


Features:

(i) Voluntary association. A co-operative society is a voluntary association of


persons and not of capital. Any persons irrespective of his caste and creed, can
join a co-operative society of his free will and can leave it at any time after giving
due notice to the society. While leaving, he can withdraw his capital from the
society. He cannot, however, transfer his share to another person. The voluntary
character of the co-operative association has two major implications: (a) none will
be denied the right and opportunity to become its member, and (b) the cooperative society will not compel anybody to become a member. Exception will, of
course, have to be made in the case of people whose professional interests differ
from those of the society, e.g., a private trader competing with a consumer cooperative.
(ii)Finance. The capital of a co-operative society is raised from members by way
of share capital. Since co-operatives are organised by relatively weaker sections
of society, the share capital is generally limited. However, it is a part of
government policy to assist and encourage co-operatives and, therefore, a cooperative society can usually augment its resources by loans from the State an
Central co-operative Banks.
(iii) Control and management. Democracy is the key-note of the management
of a co-operative society. Since most of these societies operate on a local scale
the meetings of the members are generally well attended. At these meetings, the
members elect the managing committee an lay down the policy which its must
follow to promote their common interest. Each member, whatever be his stake in
the society, has one vote and hence an equal right to participate in the
management of the society. Members cannot vote by proxy. Besides, the
organisation a n control of a co-operative society tend to be perfectly democratic
in so far as its bye-laws are approved by the members after it has been
registered. Not merely this, even the day-to-day work of a co-operative society
may be carried on by members working in different capacities, and outsiders may
be employed only when the society grows too large.
(iv) Service motto. A co-operative society is organised primarily with the object
of rendering maximum service to its members in a certain field. It does not aim
at profit at the cost of its members, for its members, for it is formed basically for
providing certain essential facilities to members . This does not mean that a cooperative society will never work for profit. It is quite usual for societies to earn
profits by extending their services to non-members.
(v) Disposal of surplus. It is usual for commercial concerns to distribute profit
among the owners in the ratio of their capital contribution, or in an agreed ratio.
A co-operative form of ownership and organisation, the surplus arising out of a
year's working is given to the members not directly as dividend on shares held by
each of them, but in the form of a bonus which need not be proportionate to
there respective capital contributions. The bonus may be paid to the members in
proportion to purchases made during the year in the case of a consumers' cooperative store, or in proportion to the goods delivered for sale to the society in
the case of a producers' co-operative store. In fact, the profit arising out of a
difference between the cost price and market price may not be distributed among

members but may be utilised in extending amenities and facilities to the members
of for undertaking certain social activities for the benefit of the members. It may
be noted that law requires that every co-operative society must transfer at least
one-fourth of its profits to a general reserve. Likewise, it is provided that a
portion of the profit, not exceeding 10 percent, may be utilised for the general
welfare of the locality in which the society is functioning.
(vi) Fixed return on capital. One of the basic principles of co-operative
organisation, laid down by the pioneers of the co-operative movement lime
Rochdale and Owen, was that a fixed or limited return of capital subscribed to the
society must be paid out of the surplus to the members. Making the payment
fixed interest on paid-up capital definitely a first charge on the trading surplus,
gave those who joined the society a solid for leaving their saving in deposit with
it.
(vii) State control and corporate status. Although voluntary in their basic
character, the co-operative societies are subject to considerable Stat control and
supervision. In India, the co-operative State co-operative societies Act, as the
case may be. The co-operatives desiring to be registered must fulfill the following
broad and basic requirements: (i) A co-operative society must have at least 10
members who have attained majority in age (i.e., are above 18 years of age). (ii)
The members should be bound together by a common bond' e.g., they may
belong to the same village or locality, tribe, or occupation, etc. (iii) The members
should present a joint application to the Registrar of Co-operative Societies
furnishing important particulars like membership, share capital, objects, etc. (iv)
A copy of the be-laws and the scheme of organisation should be submitted to the
Registrar. On registration, the co-operative society will attain the corporate status
(the status of a company) and will become entitled to certain privileges. It will
also be subject to control and supervision by the State. In fact the co-operative
department and has to furnish returns of membership and manual report an
accounts to the Registrar of co-operatives. In some states like Madhya Pradesh,
the Registrar of Co-operative Societies even approves of appointments in
managerial position an lays down terms of employment.
Advantages:
An advantage of a co-operative business is they are usually more stable, caring
and responsible employers. They can give greater job satisfaction and variety,
and encourage a strong work commitment. They are more responsible to the
customer and the community within the business.
1. Any one is allowed to buy shares into the company.
2.Creates a strong working commitment
3.If the company is incorporated then the members in the company are entitled
to Limtited Liability!
Disadvantages:
The following are the reasons of failure or defects and disadvantages of
cooperative organization.
1.Lack of capital.
(a).Its members are generally related to the poor group of the society and they
are not in a position to invest a large amount.

(b).External financial resources of the society are limited.


(c).It cannot borrow money from non-members.
(d).It cannot issue any kind of debentures.
(e).It share cannot be transferred to nonmembers.
It thus suffers shortage of capital for the operation of business.
2.Limited scale. Due to the various hindrances behind the growth of capital, it is
not possible for the cooperative society to start its business at a large scale; it
therefore, keeps its business limited in the narrow field of cooperation.
3.Inefficient management. Expert and efficient management is important
factor for running the business successfully. But a society cannot afford to hire
the services of superior abilities due to its limited resources. Therefore its
business cannot be carried on smoothly.
4.Lack of prompt decision. As all the matters are decided by the management
committee and complied by another authority, it cannot act with promptness, if a
chance comes to make a timely purchase or sale, they have to wait to get others
consent. Formation of a Company in Pakistan
Relevant laws of Pakistan
Companies remain the most favoured form of business organization in Pakistan
especially for medium and large-scale business enterprises. Legal regime for
establishment and regulation of companies in Pakistan is given in the Companies
Ordinance, 1984. Whereas the function of administration of these companies is
vested in the Securities and Exchange Commission of Pakistan and the Registrar
of companies appointed by the Securities and Exchange Commission of Pakistan
for a Province of Pakistan where such company is to be registered.
Under the provisions of the Companies Ordinance, 1984 a company is a body
corporate with separate legal entity and a perpetual succession and a company
may be formed by persons associating for any lawful purpose by subscribing heir
names to the memorandum of association and complying with other requirements
for registration of a company under the provisions of the Ordinance.
The Companies Ordinance, 1984 provides three different types of companies:

A company limited by shares

A company limited by guarantee

An unlimited liability company

Further, under the Companies Ordinance, 1984 two types of limited liability
companies are provided namely:

A private limited company

A public limited company (which may be listed or unlisted)

Any one or more persons associated for any lawful purpose by subscribing their
name(s) to the Memorandum of Association and complying with other registration

specific requirements of the Companies Ordinance, 1984 may incorporate a


private limited company. Provided that where a company has only one subscriber
to the Memorandum of Association then such a company is called a Single
Member Company, however, a Single Member Company remains a private limited
company for all intents and purposes of the Ordinance. Whereas any three or
more persons so associated may form a public limited company. A company
limited by shares whether private company or a public company is the most
common vehicle for carrying out a business enterprise in Pakistan.
Registration of a Company and Commencement of Business in Pakistan
The first step toward incorporation of a company in Pakistan is to file an
application before the Registrar of companies for availability of name. If the
proposed name of the company is available and it is not in contravention to the
provisions of the Companies Ordinance, 1984 and the Rules formed there under,
then the Registrar shall issue a certificate stating that the proposed name is
available to be adopted.
The nest step is to file the Memorandum of Association and Articles of
Association, which in effect is the constitution of any company, with the Registrar
of companies in the Province where proposed company is to be incorporated,
along with other necessary forms prescribed under the Companies Ordinance,
1984. When the company has been registered the Registrar issues a Certificate of
Incorporation. Once such a certificate has been issued by the Registrar a private
limited company may commence its business immediately. Nonetheless, a public
limited company cannot commence its business or exercise its borrowing powers
yet unless the Registrar has issued a Certificate for Commencement of Business.
The Registrar issues the Certificate for Commencement of Business only if the
following requirements have been fulfilled:
Shares held subject to the payment of the whole amount thereof in cash have
been allotted to an amount not less in the whole than the minimum subscription
Every director of the company has paid to the company the full amount on each
of the shares taken or contracted to be taken by him and for which he is liable to
pay in cash
No money is or may become liable to be repaid to applicants for any shares or
debentures which have been offered for public subscription by reason of any
failure to apply for or to obtain permission for the shares or debentures to be
dealt in on any stock exchange
There has been filed with the Registrar of Companies a duly verified declaration
by the chief executive or one of the directors and the secretary in the prescribed
form that the aforesaid conditions have been complied with and the Registrar of
Companies has issued a Certificate of Commencement of Business
In the case of a company which has not issued a prospectus inviting the public to
subscribe for its shares, there has been filed with the Registrar of Companies, a
statement in lieu of prospectus
A public limited company may either be listed or unlisted. In case of a listed
company its shares may be quoted and dealt with on one of the three stock
exchanges of Pakistan viz. Karachi Stock Exchange, Lahore Stock Exchange and
Islamabad Stock Exchange. Whereas the shares of an unlisted public limited
company may not listed on a stock exchange. A public limited company that
intends to have its shares listed on a stock exchange must obtain permission from
the relevant stock exchange under the listing regulations of that stock exchange.