Unit 1: Business Organization Concepts

The process of combining different skills and resources to achieve a common goal.

Rules that specify minimum standards that companies must adhere to.

Rules that apply in the absence of specific agreements or arrangements.

The ability of a company to raise funds by issuing shares to investors.

Fixed interest payments that are independent of the company's profits or losses.

Dividends paid to shareholders based on the company's profits.

The potential for unlimited dividends for equity investors, but also the risk of receiving no return if the company doesn't make a profit.

The amount of money a company owes to creditors.

The legal framework governing the formation, operation, and dissolution of companies.

The legal framework governing the formation, operation, and dissolution of partnerships and companies.

A closed system of legal forms for businesses, meaning you can't create your own.

A public record containing information about businesses, accessible to third parties.

The legal principle where all partners are personally liable for all debts of the partnership.

The legal principle where all partners are involved in managing the partnership.

A type of partnership with limited liability for some partners, meaning their financial risk is limited to their initial investment.

A legal principle where the company can be held liable for actions taken by individuals who appear to be authorized representatives even if they are not.

A legal concept stating a company is liable for the actions of its directors only if they breach their specific legal duties, not simply for bad luck.

A legal liability that directly affects the company, not its individual shareholders. The idea is that damages to the company ultimately harm its shareholders.

A legal obligation on directors to act in the best interests of the company. It includes prohibitions on self-dealing and competing with the company, and a duty to maintain confidentiality.

A legal obligation for directors to exercise due care and diligence in managing the company, similar to what a reasonable and prudent manager would do.

A legal standard used to judge director decisions. It involves analyzing whether the decision was made after appropriate consideration, without conflicts of interest, and wasn't completely unreasonable.

The risk faced by shareholders despite management liability. Even if the company is compensated, the shareholder ultimately bears the risk of business losses.

Insurance designed to protect directors and officers from personal liability arising from business decisions. It helps compensate shareholders for the losses resulting from potentially wrongful decisions made by company management.

A legal action initiated against a company's directors, potentially arising from breaches of duty of care or loyalty or other violations.

A group of companies where one company (parent) owns another company (subsidiary) that is separate in terms of liability. The parent company is not responsible for the debts of the subsidiary.

The ability of a company to manage its assets and liabilities in different entities. This helps limit the risk of losses by isolating high-risk activities in separate subsidiaries.

A legal entity that combines characteristics of both companies and partnerships, offering limited liability for members and direct taxation on their profits.

The legal principle that separates a company's existence from its owners, preventing personal liability for company debts.

A legal entity in which all partners are personally liable for the debts of the partnership, even if they didn't directly contribute to them.

A type of partnership where some partners have limited liability, meaning they are only responsible for their own contributions. One 'general partner' still holds unlimited liability.

The legal principle that allows a company to be taxed on its profits separately from its owners, resulting in double taxation.

A legal entity with its own rights and obligations, distinct from its members. Examples include cooperatives, associations, and foundations.

A legal capital rule that prevents companies from distributing funds to shareholders unless certain conditions are met. This rule ensures that the company maintains enough capital to continue operating and to meet its financial obligations.

A type of consideration for shares where the shareholder pays with cash. This type of payment requires verification by the company that the shareholder can freely dispose of the funds.

A scenario where a shareholder agrees to pay with cash, but the company is obligated to use those funds to purchase assets from that shareholder. This can lead to problems because the company doesn't have free disposal of the cash.

A type of consideration for shares where the shareholder contributes assets instead of cash. The value of these assets needs careful assessment to ensure fair value is given to both the company and the shareholder.

The process of determining the fair value of assets contributed as consideration for shares. This can be complex as it involves objectively assessing the worth of the assets.

The potential issue that arises when the value of assets contributed as consideration in kind is underestimated, requiring the shareholder to pay the remaining amount in cash. This can lead to liabilities for all shareholders.

A rule that restricts the amount of capital that can be contributed as consideration in kind without requiring independent expert assessment. This rule aims to prevent situations where the value of the assets is incorrectly assessed

The process of distributing profits to shareholders. This is only allowed under certain conditions, such as having sufficient capital available and ensuring that the company's financial position remains stable.

Shareholders who have the right to vote at a general meeting but choose not to participate due to the belief that their vote will not significantly influence the outcome.

A strategy where shareholders authorize another party to attend a general meeting and cast votes on their behalf. This can be used to increase representation and influence.

A document that verifies the ownership of shares for unlisted companies, allowing shareholders to participate in general meetings.

An independent organization advising institutional investors on how to cast their votes in general meetings, often by analyzing company performance and corporate governance practices.

Rules that guide institutional investors on responsible voting practices, encouraging them to actively participate in general meetings and explain their voting decisions.

The minimum percentage of members required to be present at a general meeting for it to proceed and make valid decisions.

The process of holding a general meeting for private limited companies. This involves fewer formalities compared to public companies.

A meeting where shareholders of a company gather to discuss and vote on important matters, such as electing directors, approving financial statements, and making strategic decisions.