Organization

Introduction To Organization:

• Organizations are conceived as social structures created by individuals to

support the collaborative pursuit of specified goals.
• an organization can be defined as a process that defines the resources as well
as allocate them, coordinates human efforts and integrates both in order to
achieve the defined goals.
• 'Organization' can be interpreted in a variety of ways. It can be used as a
framework of relationships, a management process, or a group of people
working together.
• Organizing management, on the other hand, refers to the link between people,
work, and resources that are employed to accomplish a common purpose
(goals).
Definition Organization:
• Louis Allen, “Organization is the process of identifying and grouping work to be
performed, defining and delegating responsibility and authority and establishing
relationships for the purpose of enabling people to work most effectively
together in accomplishing objectives.”

• "Organization is the shape of every human association for the accomplishment

of a common goal," Mooney and Reilly write.

• Organizing, according to Koontz and O'Donnell, entails determining and

enumerating the activities required to achieve the goals of an enterprise and
each part of it, grouping these activities, assigning such groups of activities to
managers, delegating authority to carry them out, and providing for the
horizontal and vertical coordination of authority and informational
relationships.
Need for Organization :
A comprehensive approach to organizing helps the management in many ways.
Organizing aligns the various resources towards a common mission.
1. Efficient Administration:
It brings together various departments by grouping similar and related jobs under a single
specialization. This establishes coordination between different departments, which leads to
unification of effort and harmony in work.
It governs the working of the various departments by defining activities and their authority
relationships in the organizational structure. It creates the mechanism for management to
direct and control the various activities in the enterprise.
2. Resource Optimization:
Organizing ensures effective role-job-fit for every employee in the organization. It helps
in avoiding confusion and delays, as well as duplication of work and overlapping of
effort.
3. Benefits Specialization:
It is the process of organizing groups and sub-divide the various activities and
jobs based on the concept of division of labor. This helps in the completion of
maximum work in minimum time ensuring the benefit of specialization.

4.Promotes Effective Communication:

Organizing is an important means of creating coordination and communication among the
various departments of the organization. Different jobs and positions are interrelated by
structural relationship. It specifies the channel and mode of communication among different
members.

5. Creates Transparency:
The jobs and activities performed by the employees are clearly defined on the written
document called job description which details out what exactly has to be done in every job.
Organizing fixes the authority-responsibility among employees. This brings in clarity and
transparency in the organization.
Process of Organizing
Process of Organizing :
1. Identification and division of work: Organizing process begins
with identifying the work and dividing them as per the plans.
Basically, the work is classified into different manageable activities, to
avoid redundancy, and sharing of work is encouraged.
2. Departmentalization: After classifying the work into different activities, the
activities having a similar nature are grouped together. This process is called as
departmentalization which facilitates specialization and forms the basis for
creating departments.
3. Assignment of the task: After the formation of departments, employees are
placed in different departments under a manager, called as a departmental
manager. Thereafter, employees are assigned the jobs as per their skills,
qualifications and competencies. For the effectiveness of the performance, the
manager must ensure that there is a proper match between the job and the
incumbent, i.e. the right person has to be placed at the right job.
4. Establishment of organizational hierarchy: Deployment of work
is not all, the employees must be aware of whom they have to report
and who can give them orders. Hence, work relationships need to be
established clearly, which helps in the creation of a hierarchical
structure of the organization.

5. Provision of resources to the members: Arrangement and deployment of

resources such as money, materials, supplies, and machine, etc. which are
important to carry out day to day operations of the organization.

6.Coordination of efforts and scheduling of activities: The final step to this

process is the coordination of efforts and scheduling the activities in a logical
and systematic manner so that the common objectives can be achieved
effectively.
 Organizational structure
What Is an Organizational Structure?
• An organizational structure is a system that outlines how certain
activities are directed in order to achieve the goals of an organization.
These activities can include rules, roles, and responsibilities.
• The organizational structure also determines how information flows
between levels within the company.
• They define a specific hierarchy within an organization.
• A successful organizational structure defines each employee's job and
how it fits within the overall system.
• Put simply, the organizational structure lays out who does what so
the company can meet its objectives.
 Centralized And De-centralized Organizational Structure
Centralized:
• Centralization refers to the concentration of management and decision-
making power at the top of the organizational hierarchy for the purpose of
coordinating financial, human, and other business resources.
• In centralized organizations, strategic planning, goal setting, budgeting, and
talent deployment are typically conducted by a single, senior leader or
leadership team.
Decentralized:
• In decentralized organizations, formal decision-making power is
distributed across multiple individuals or teams.
• Individuals at a lower level approve decisions and then report them to
personnel in upper management.
 Types of Organizational structure

There exist two types of organization:

•Formal Organization

•Informal Organization
1. Formal Organization:
• Formal organization is that type of organization
structure where the authority and responsibility are
clearly defined.
• The organization structure has a defined delegation of
authority and roles and responsibilities for the members.
• The formal organization has predefined policies, rules,
schedules, procedures and programs. The decision
making activity in a formal organization is mostly based
on predefined policies.
• with systematic coordination among various activities, it
ensures achievement of organizational goals.
Advantages of Formal Organization:
•The formal organization clearly outlines the relationships among employees.
Hence, it becomes easier to rack responsibilities.
•An established chain of commands maintains the unity of command.
•As the duties of each member is clearly defined, there is no ambiguity or
confusion in individual roles whatsoever. Further, there is no duplication of
efforts which eliminates any wastage.
•In a formal organization, there is a clear definition of rules and procedures.
This means that behaviors and relationships among the members are
predictable. Consequently, there is stability and no chaos existing in the
enterprise.
•Finally, it leads to the achievement of organizational goals and objectives. This
is because there exist systematic and well thought out work cultures and
relationships.
Disadvantages of Formal Organization:
•Decision making is slow in a formal organization. It is important to
realize that any organizational need has to flow through the respective
chain of commands before being addressed.
•Formal organization is very rigid in nature. This means that there prevails
perfect discipline coupled with no deviations from the procedures. Hence,
this can lead to low recognition of talent.
•Lastly, the formal organization does not take into account the social
nature of humans as it talks about only structure and work. Interestingly,
we cannot eliminate this integral part of our nature. Hence, it does not
entirely display the functioning of the organization.
 Types of Formal Organizational structure
There are several types of formal organization based on
their structure:

1. Line Organization
2. Line and Staff Organization
3. Functional Organization
4. Project Organization
5. Matrix Organization
Functional Organization:
▪ Functional organization structure is
the type of organization where the
task of managing and directing the
employees is arranged as per the
function they specialize.
▪ In a functional organization, there are
three types of members, line
members, staff members and
functional members.
▪ Functional Structure Organization is
one of the most common structures of
organization.
Advantages of Functional Structure Organization:
•The executive or the team leader has the knowledge and experience of that
particular field. For example, the person heading the IT department will have
the education and skill necessary to shoulder this responsibility and
successfully run his team.
•Because the employee has expertise in that particular field, the work is more
efficient and precise. There are fewer mistakes. This also helps with
the motivation of the employees of the company.
•Since all team members come from similar backgrounds it allows them to
share ideas and come up with solutions. There is a sharing of knowledge,
which is always beneficial.
•The employees also having a clear idea of the hierarchy of the firm. They need
not report or answer to several managers.
•Also, the employees feel secure in their work. They see that their work and
efforts is not going unnoticed. This sense of security helps them perform better.
Disadvantages of Functional Structure Organization:
•The work can be quite one dimensional. After a while, the employees may
start feeling monotony or boredom. The lack of new challenges can make them
unenthusiastic for the job at hand.
•In this structure, the manager must take care of the appraisal system. If the
correct approach is not taken then conflicts may arise between the employees
regarding promotions or appraisals.
•Also, this form of organization requires a high degree of specialization which
is difficult to establish.
•If there is a necessary change of personnel it can disrupt the whole system
and its balance. Also, it is quite a rigid structure, not leaving a lot of scope
for adaptation.
•In Functional Organizational Structure, the employees never gain any
knowledge or skills outside their own department. This can cause difficulties
in inter-departmental communication.
Project Organization:
▪ A project organization is a temporary form of organization structure that
is formed to manage projects for a specific period of time.
▪ This form of organization has specialists from different departments who
are brought together for developing a new product.
▪ A project structure organizational structure is used to determine
the hierarchy and authority of people involved in a specific project.
▪ This organizational structure is temporarily created for specific projects
for a particular period, for the project to achieve the goal of developing a
new product, specialize in various functional departments such as
production, engineering, quality control, marketing research etc. and will
be ready to work together.
Project Organization:
When to use the project structure organization?

•It is a one-time task and is fixed in the context of a single,

specific goal.

•It is big in scope It is unfamiliar or lacks precedent.

•It is complex and calls for a high degree of freedom.

•Successful completion of the project has a high stake.

•The result is very important for the organization.

Advantages of Project organization:
1. The presence of many specialists from different departments
increases the coordination among the members.
2. Each individual has a different set of responsibilities which
improves control of the process.

Disadvantages of Project Organization:

1. There can be a delay in completion of the project.
2. Project managers may find it difficult to judge the performance of
different specialists.
2. Informal Organization:
▪ Informal organizations are those types of organizations which do
not have a defined hierarchy of authority and responsibility.
▪ In such organizations, the relationship between employees is
formed based on common interests, preferences and prejudices.
▪ Unlike formal organization, informal organization is fluid and
there are no written or predefined rules for it.
▪ it cannot be forced or controlled by the management.
▪ as there are no defined structures or lines of communication, the
interactions can be completely random and independent lines of
communication tend to emerge in informal organization.
Advantages of Informal Organization:
•In this type of organization, communication does not need to
follow the defined chain. Instead, it can flow through various
routes. This implies that communication in an informal organization
is much faster relative to formal organization.
•Again, humans are social animals. The needs to socialize exists
deep within our existence. The informal organization ensures that
there is socialization within the enterprise. Consequently, members
experience the sense of belongingness and job satisfaction.
•Informal organization, getting true feedbacks and reactions is not
easy. Hence, in informal organization, various limitations of formal
organization is covered up.
Disadvantages of Informal Organization:
•The informal organization is random and can result in the spread
of rumors. Again, we cannot manage and control informal
organization. Consequently, this may result in chaos within the
enterprise.
•It is important to realize that it is not possible to effect changes
and grow without the support of the informal organization. This
can work in both ways, for growth or decline of the enterprise.
•To point out again, informal organization conforms to group
standards and behaviors. If such behaviors are against the
organizational interests, they can eventually lead to disruption of
the organization.
 Memorandum of Association (MoA)
Introduction:
• A company is formed when a number of people come together for
achieving a specific purpose. This purpose is usually commercial in
nature. Companies are generally formed to earn profit from business
activities.
• To incorporate a company, an application has to be filed with the
Registrar of Companies (ROC).
• This application is required to be submitted with a number of
documents. One of the fundamental documents that are required to
be submitted with the application for incorporation is the
Memorandum of Association.
MoA Definition:
▪ Memorandum of Association is a legal document that explains why the
organization was founded.
▪ It defines the powers of the company and the conditions under which it
operates.
▪ It is a document that contains all the rules and regulations that govern a
company’s relations with the outside world.
▪ It is mandatory for every company to have a Memorandum of Association
which defines the scope of its operations. Once prepared, the company
cannot operate beyond the scope of the document.
▪ It is a foundation on which the company is made. The entire structure of the
company is detailed in the Memorandum of Association.
▪ The memorandum is a public document. Thus, if a person wants to enter
into any contracts with the company, all he has to do is pay the required fees
to the Registrar of Companies and obtain the Memorandum of Association.
• Through the Memorandum of Association he will get all the
details of the company. It is the duty of the person who
indulges in any transactions with the company to know
about its memorandum.
• MoA must be signed by at least 2 subscribers in case of a
private limited company, and 7 members in case of a public
limited company.
 Format of MoA:
• The format of a MoA is specified in Table A to Table E depending
upon the type of company.
• A company can adopt the table applicable to it.
• for instance, Table A is for a company limited by shares, and Table B
is for a company limited by guarantee and having share capital etc.
Table A – It is applicable to a company limited by shares.
Table B – It is applicable to a company limited by guarantee and not having a
share capital.
Table C – It is applicable to a company limited by guarantee and having a share
capital.
Table D – It is applicable to an unlimited company not having a share capital.
Table E – It is applicable to an unlimited company having a share capital.
Contents of MoA:
Name Clause:
• This clause specifies the name of the company.
• The name of the company should not be identical to any existing company.
Also, if it is a private company, then it should have the word ‘Private Limited’
at the end. And in case of public company public company, then it should
add the word “Limited” at the end of its name. For example, ABC Private
Limited in case of the private, and ABC Ltd for a public company.
Registered Office Clause:
• This clause specifies the name of the State in which the registered office of
the company is situated.
• This helps to determine the jurisdiction of the Registrar of Companies.
• The company is required to inform the location of the registered office to the
Registrar of Companies within 30 days from the date of incorporation or
commencement of the company.
Object Clause:
• This clause states the objective with which the company is formed.
• The objectives can be further divided into the following 3 subcategories:
a) Main Objective: It states the main business of the company
b) Incidental Objective: These are the objects ancillary to the attainment of main objects of the company.
c) Other objectives: Any other objects which the company may pursue and are not covered in above (a) and (b)

Liability Clause:
• It states the liability of the members of the company.
• In case of an unlimited company, the liability of the members is unlimited
whereas in case of a company limited by shares, the liability of the members
is restricted by the amount unpaid on their share.
• For a company limited by guarantee, the liability of the members is restricted
by the amount each member has agreed to contribute.
Capital Clause:
• This clause details the maximum capital that a company can raise which is
also called the authorized/nominal capital of the company.
• This also explains the division of such capital amount into the number of
shares of a fixed amount each.
❑ What is the purpose of MoA?
• The main purpose of the MoA is to limit the scope of
activities and powers of the company.
• A company is authorized to do only the acts within the
scope of the powers provided to it by the MoA. Any act
done by the company that is outside the scope of the MoA
is ultra virus.
• The ultra virus act of the company means an act done by the
company beyond its power.
Articles of Association (AOA):
• Every company needs a set of rules and regulations to manage its internal
affairs. The AOA specifies the internal regulations of the company.
• In simple words, AOA companies act contains the bye-laws of the
company, according to which the director and other members must
perform their functions.
• In the AOA, the companies include all pieces of information, like the
rights of the employees from directors to executives, limited
liability members, the decision-making protocol, the powers and duties of
the directors, their appointment process, the steps to approve and issue
dividends, the requirements of the general meetings and board meetings,
voting rights, etc.
• It is the rule book of any company that covers the regulations, and
operational guidelines to follow within the organizational premises to
achieve the business goals and objectives.
• The articles of association constitute a set of guidelines that
companies and their staff members, from board of directors to
executives, need to follow.
• Every company should have an AOA as a guide to refer to before
making any minor or major business decision.
• Whether companies want to know the process of appointing a
director or executive or they are to decide the number of shares to
issue, going through this document helps them proceed in a
sequence.
• There are default standard formats or model articles of
association that most companies use. However, the businesses have
the liberty to make changes in the same as per their individual
company requirements.
Contents of AOA:
• The contents of articles of association vary from company to company,
given their requirements. However, there are some of the aspects that
are covered in all AOAs being filed with the government for approval.
Company Details:
⮚ The first one is the details of the company.
⮚ All basic information is provided under this separate section of the AOA,
from the name of the entity to the name of the incorporators and their
addresses.
⮚ As far as the company’s name is concerned, every government has a
different format that the corporate entities need to follow. Thus, they must
name it per the standards.
Purpose:
⮚ When a business is incorporated, it is done with a purpose.
⮚ The AOA has this section for the incorporators to mention the business
goals.
⮚ It is an important segment of the document, which the government
authorities look into in detail. Thus, the owners must outline how the
business would carry out the day-to-day tasks.
Duration:
⮚ The duration of the purpose or company formation also requires specific
mention.
⮚ Some entities form themselves for a specific reason, and once that is
fulfilled, they pull it out. Here, the companies mention whether the
incorporation is seasonal or for one particular objective for a limited
period, or permanent.
Power Distribution:
⮚ Delegation of power is necessary for companies if they aspire to run in an
organized manner. Hence, they have a hierarchy of staff from the
management to anyone working there.
⮚ The distribution of powers is the section that deals with this aspect of
incorporation.
⮚ The hierarchy-wise roles and responsibilities of individuals are mentioned
in this segment.
Company Organization:
⮚ The AOA gives details about the number of employees and directors, along
with other information related to the company’s organization.
⮚ In addition, the details of the shareholders, founders, investors, auditors,
etc., are found in this section.

Share Capital:
⮚ The rights they all enjoy in the company are briefed herein. Thus, the AOA
lets the authorities understand the management of the share capital by the
companies.
⮚ Also, it includes the information regarding the alteration that occurs in the
share capital, calls on shares, shareholders’ rights, voting rights, preference
shares, etc.
Shareholder Meeting:
⮚ This section contains the requirements of the general or director
meetings.
⮚ In addition, the rules that govern the annual meeting of shareholders are
found here, along with the notices, resolutions, and votes.
Tables for Article of Association:
Tables to opt for AOA in case of different types of companies are-
1.Table F- for a company limited by shares
2.Table G- for a company limited by guarantee
3.Table H- for a company limited by shares and guarantee
4.Table I- for an unlimited company with share capital.
5.Table J- for an unlimited company without share capital
Importance of AOA:

⮚ AOA helps companies have a rule book to refer to whenever

they require it.
⮚ The document acts as a user manual that guides every
employee in case of minor or major queries as it contains all
rules and regulations that all management and employees must
follow.
⮚ When businesses prepare the AOA, it is easier for them to
apply for different loans for approval.
⮚ Plus, they can have a new business account opened instantly.
⮚ In addition, this document makes the government recognize the
entity as a corporate player, and it gets legal recognition in the
region it operates and beyond.
Difference Between MOA and AOA
 BASIS MEMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION

Definition MOA is a document that contains the AOA is a document that contains details
details required to incorporate a company. about the internal management of a
company.

Content It contains information about the It contains information about the rules
therein objectives of the company and its powers. and regulations of the company.

Status It is considered subordinate to the It is considered subordinate to the

Companies Act, 2013 Memorandum of Association.
Effect The MOA of the company does not The AOA of the company does have a
have a retrospective effect on the retrospective effect on the amendments.
amendments.

Clauses The MOA has 6 major clauses as The AOA can be created as per each
discussed above. companies needs and thus does not have a
particular set of clauses.

Obligation It is mandatory for each company to Only a private company is required to

have a duly signed MOA at the time create an AOA whereas a public company
of incorporation. can easily opt for table F.

Alteration MOA can be altered by passing an AOA is an internal matter and thus can be
SR and with the prior approval of easily altered by just passing an SR.
the central government.