How Companies Are Structured
An Acceler8now.com Investing Education Resource July, 2007
As a shareholder, you become an important member of the company and a stakeholder. It is important you understand the general structure of companies as this will help you appreciate where you fit in and where certain issues are tackled. This is not about the nitty-gritty of the internal structure of a particular company as these details will vary between companies. Within the law, however, certain operational framework is prescribed and applies to all public companies.
Body of Shareholders
Firstly, there is the body of shareholders of which you are a member. The members meet in general or extraordinary meetings as may be summoned when important issues requiring member resolutions arise. It is within such forum too that they appoint some of their members as directors in the company, with a chairman.
A Board of Directors Overseas the Company
Since all shareholders cannot practically participate actively in running the company, the law requires them to appoint a board of directors to oversea the running of the company on their behalf and a chairman to head the board. The Board articulates the policy direction of the company, appoints and overseas the activities of the Management, recommends dividend payment and takes important decisions that shape the fortunes of the business. The board will have a secretary, usually designated the company secretary.
Management of the Company
Executing its mandates does not confer on the board a responsibility or prerogative to meddle in the day-to-day administration of the company. That is the purview of the Company Management, headed by the Managing Director (MD). The MD is a director too, but a staff, leading a team of other employees to carry out the functions of operating the business and earnings returns for the shareholders.
The Company Registrar Manages the Register of Members
The membership of a company could be extensive, with people from all over the nation or across the globe. It would be utter confusion if there is no means of keeping track. That is the function of the Registrar of the company, who maintains a register of members. Such register is updated each time a share changes hands. Considering that, for some companies, lots of shares are bought and sold everyday, it becomes easy to appreciate the enormity of this responsibility. As a shareholder, you may find need to see the registrar, for instance if you lose a share certificate (he will re-issue when you meet necessary conditions) or sign a share transfer form irregularly.
The External Auditor is Your Third Eye
Companies have a statutory obligation to appoint an External Auditor. The external auditor must review the books and present a report to the members on the financial statements presented to them at the annual general meeting. Usually, the directors recommend an auditor, but the seal of approval must be issued by the members in the general meeting.
Between these important organs, the smooth operation of the company you invested in is expected to be achieved. No doubt that if any of these parties is unable to discharge their responsibility with adequate impact, the fortunes of the company may be affected.
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