Unit 8 internal managenent

The internal management of the company is regulated by a document called the articles of association. Although these need not be registered (except for companies limited by guarantee), they must conform to an authorized pattern. They detail rules about such matters as when and at what notice meetings must be held; members' voting rights, and the size of majority required to pass resolutions; issuing of shares; and the appointment, powers, and removal of directors. Under the Companies Act every public company must have at least two directors, and every private company, at least one. A director need not be a member (that is, a shareholder), but details of any shares he holds must be registered. He is not an employee of the company, but may be paid for his work as long as the members of the company agree to this. He has a duty to exercise a reasonable standard of care and not to make secret profits from company business. If he holds an interest in another firm with which the company is doing business, the law requires him to declare that interest at a board meeting (meeting of the directors).

The law also requires a limited company to keep accounting records at its registered office, including entries of receipts and payments and a record of assets and liabilities. These records must be open to inspection at any time by the company's directors and secretary, and a copy must be sent to the registrar each year. A profit and loss account, together with a financial report by the directors and a report from an independent auditor (inspector), must be put before a general meeting of the company's members every year. Breaking these regulations may result in criminal prosecution.

Another possible cause of criminal prosecution is insider trading. This means using inside knowledge to gain private profit when buying and selling company shares. Directors and employees of companies are often in a position to know if a company's shares are likely to rise or fall long before ordinary shareholders. As a result, they could make profits by buying or selling before everybody else, or by selling their special information. In 1990, a New York stockbroker was imprisoned for this offence. The crime was not even recognized in English law until 1967. The 1985 Company Securities (Insider Dealing) Act lays down a maximum penalty of two years imprisonment, but the recent discovery of how widespread this practice is means the penalty is likely to be increased as a deterrent.

Exercise: 1

Articles of Association

The Articles of Association govern the running of a company and set out the rights and obligations of members and directors. Below are the main sections of the Articles of Association. The details below describe the terms and conditions in each section. Match each section to its description.

1. Share Capital

2. Lien

3. Calls

4. Pre-emption

5. Transmission of Shares

6. Notice of Meetings

7. Proceedings at General Meetings

8. Directors

9. Notices

10. Indemnity

11. Winding up

a) This allows the directors of the company to sell a shareholder's shares in the company to repay any debt owed by the shareholder to the company.

b) This provides that any shareholder who wishes to sell his shares has to first offer them to the other shareholders at the same price as he wishes to sell to a third party.

c) This provides that the directors of the company shall not be personally liable in any civil or criminal proceedings as long as they have carried out their duties lawfully.

d) This deals with advance information that is to be given to each member about meetings and providers that each member is allowed to appoint a proxy to attend in his place at meetings.

e) This requires all directors to be informed about meetings, whether they are in the country or abroad.

f) This allows the company to recover its costs of recovery from a late paying shareholder.

g) This sets out the share capital of the company.

h) This allows the assets of the company to be distributed if the company goes into liquidation.

i) This stated the number of members who must be present.

j) This provides that when a shareholder dies he is deemed to give notice to sell his shares (which allows the other shareholders to buy them for a fair price)

k) This regulates the maximum number and their counduct.

Exercise: 2

Act as an interpreter for A and B:

A.: Які ще форми організації бізнесу,крім приватного підприємництва,товариства й компанії,існують у сучасному діловому світі?

B.: Other types of business organizations may include: public, corporations (government-owned corporations), cooperatives , non-profit organizations (non-profit corporations),franchises, joint ventures etc.

A.: Що являють собою державні корпорації?

B.: Publicly owned companies or government-owned corporations are corporations that are owned and managed by the government.

A.: Яка основна мета створення корпорації?

B.: In the most instances they were created to provide services that private enterprises were unable or unwilling to offer. Electric power stations, the postal service, transportation services and other publicly owned utilities are examples of state-owned corporations.

A.: Які основні риси некомерційних організацій?

B.: Nonprofit organizations do not seek to earn profit. Rather, they serve particular educational, social, charitable or religious purposes. Since they earn no profit, they are not subject to income taxes.

A.: Які види кооперативів є найбільш поширеними?

B.: It is worth mentioning housing cooperatives, consumer cooperatives and producer cooperatives.

A.: Якою формою організації бізнесу є франчайзинг?

B.: A franchise is an arrangement in which a company gives a business the right to sell its goods and services in return for a fee or a share of the profits. Many clothing, real estate, fast food, travel and motel chains are franchise operations.

A.: Яку роль виконують спільні підприємства у сучасному бізнесі?

B.: Joint ventures are one of the latest trends in business, when two or more companies (often from two different countries) join temporarily to accomplish some objective, for example, to carry out a large project.

Exercise: 3

Write a paragraph containing the points for and against the following statement:

“It is better for a college graduate to go to work for a large corporation than to start his/her own business.”