FORMS OF BUSINESS ORGANISATION

FORMS OF BUSINESS ORGANISATION and members may go, but the company continues to exist. (v) Control: The management and control of the affairs of the company is undertaken by the Board of Directors, which appoints the top management officials for running the business. The directors hold a position of immense significance as they are directly accountable to the shareholders for the working of the company. The shareholders, however, do not have the right to be involved in the day-to-day running of the business. (vi) Liability: The liability of the members is limited to the extent of the capital contributed by them in a company. The creditors can use only the assets of the company to settle their claims since it is the company and not the members that owes the debt. The members can be asked to contribute to the loss only to the extent of the unpaid amount of share held by them. Suppose Akshay is a shareholder in a company holding , shares of Rs. each on which he has already paid Rs. per share. His liability in the event of losses or company’s failure to pay debts can be only up to Rs. , — the unpaid amount of his share capital (Rs. per share on , shares held in the company). Beyond this, he is not liable to pay anything towards the debts or losses of the company. (vii) Common seal: The company being an artificial person acts through its Board of Directors. The Board of Directors enters into an agreement with others by indicating the company’s approval through a common seal. The common seal is the engraved equivalent of an official signature. Any agreement which does not have the company seal put on it is not legally binding on the company. (viii) Risk bearing: The risk of losses in a company is borne by all the share holders. This is unlike the case of sole proprietorship or partnership firm where one or few persons respectively bear the losses. In the face of financial difficulties, all shareholders in a company have to contribute to the debts to the extent of their shares in the company’s capital. The risk of loss thus gets spread over a large number of shareholders. Merits The company form of organisation offers a multitude of advantages, some of which are discussed below. (i) Limited liability: The shareholders are liable to the extent of the amount unpaid on the shares held by them. Also, only the assets of the company can be used to settle the debts, leaving the owner’s personal property free from any charge. This reduces the degree of risk borne by an investor. (ii) Transfer of interest: The ease of transfer of ownership adds to the advantage of investing in a company as the share of a public limited company can be sold in the market and as such can be easily converted into cash in case the need arises. This avoids blockage of investment and presents the company as a favourable avenue for investment purposes. © NCERT not to be republished