INTRODUCTION
The success or failure of a business or organization depends on a variety of factors. The corporate structure of the organization is one of those very important factors.This corporate structure varies from company to company.
As the name implies, the organizational structure of a corporation is the way in which its teams are structured or organized. A well-structured company is better positioned to achieve its goals.
In this article, we’ll explore the basics of corporate structure, key components of such a structure, and why corporate organizational structure is important to the growth of the corporation.
MEANING OF CORPORATION AND CORPORATE STRUCTURES
To fully grasp the concept of corporate structures,it is pertinent to note that such structures would not exist without an existing corporation. That is to say that such structures are created within a particular corporation.
What then is a corporation?
A corporation is a form of organization that has an existence independent of its owners. It can also be referred to as a business which has powers and liabilities separate and distinct from that of its owner(s). Such corporations may be private or public. When such businesses or corporations are formed, they may take on a variety of different corporate structures depending on the industry they are operating in and the way in which they want to operate.
What then are these corporate structures?
Corporate structure refers to how a business is organized to accomplish its objectives.The corporate structure the business owners choose may depend on the size and nature of the organisation, the industry they work in and the goals they want to achieve as a corporation. The corporate structure of a business is very important because it helps to determine the ownership, control, and authority of the organization.
A corporate structure can be either vertical or horizontal, depending on how the company wants to build its chain of command. A vertical structure is the traditional hierarchical organisation. Here, entry-level employees answer to managers, who in turn report to the board of directors. Horizontal structures, on the other hand, may have fewer middle managers and a more democratic decision-making process.
To further understand the nature of corporate or business structures,recourse will be made to the three groups of persons that actually operate under the structures.
COMPONENTS OF A CORPORATE STRUCTURE
There are 3 main components of a corporate structure are:
1. Shareholders: In a corporation, a group of shareholders have shared ownership, represented by holding shares of common stock in the business. They have the right to share in the profits of the business but are not personally liable for the company's debts. This concept is known as limited liability.
2. Board of Directors: The board of directors is generally comprised of three types of people:
a) The Chairman of the board is technically the leader of the corporation, responsible for running the board effectively.
b) Executive Directors, who are either major shareholders or high-level managers in the company.
c) Outside Directors: They are not employed by the company and do not represent any of its stakeholders. They might be other business leaders from the community, retired legal or financial professionals, or other influential people.
The board is not expected to actually operate the business. Rather, its purpose is to oversee operations, approve major plans, and monitor financial performance.
3. Corporate Officers: They are also referred to as the management team, usually selected by the board of directors and are directly responsible for the company’s day-to-day operations. The management team typically includes the CEO who is the top manager at the organization and is responsible for the organization’s entire operations, the Chief Financial Officer (CFO) who oversees the organization's finances and reports to the CEO, and the Chief Operations Officer (COO) who oversees the operations of the organization.
TYPES OF CORPORATE STRUCTURES
Having examined the components of a corporation, we will consider the actual forms or types of this corporate organizational structures necessary for the success of the corporation.
There are four basic types of corporate structures that are widely used by businesses all around the world:
1. Functional Structure
Under this structure, employees that share similar skill sets and perform similar tasks are grouped into the same departments. This is to ensure effective communication between people within a department and thus leads to an efficient decision-making process. Companies with departments such as IT and Accounting are good examples of a functional structure.
2. Divisional Structure
Under this structure, business activities are organized into specific market, product, service, or customer groups. The purpose of the divisional structure is to create work teams that can produce similar products matching the needs of individual groups. A common example of the divisional structure is geographical structure, where regional divisions are built to provide products or services to specific locations.
3. Matrix Structure
This is a combination of both functional and divisional structures. This structure allows decentralized decision making, greater autonomy, more inter-departmental interactions, and thus greater productivity and innovation. Despite all the advantages, this structure incurs higher costs and may lead to conflicts between the vertical functions and horizontal product lines.
4. Hybrid Structure
Like the Matrix Structure, the Hybrid Structure combines both functional and divisional structure. Instead of grid organization, Hybrid Structure divides its activities into departments that can be either functional or divisional. This structure allows the utilization of resources and knowledge in each function, while maintaining product specialization in different divisions. Hybrid Structure is widely adopted by many large organizations.
IMPORTANCE OF CORPORATE STRUCTURES
Besides the earlier stated fact that it plays a major role in the success of a corporation,there are other reasons why a good structure is very important to the corporation:
1. It ensures that all employees in an organisation understands how it functions and who is responsible for each task.
2. It also helps employees to understand the potential paths to a promotion that is open to them, and the steps that could help them get there.
3. It provides hierarchy in employment, such that all employees understand how they fit into the structure of the company as a whole, to know who they report to and who they depend on to complete their work. It also helps them to understand who is responsible for making final business decisions.
4. It promotes better communication between managers and employees at all levels.
5. When there is a clear structure in place, all employees understand their roles and those of others, which minimizes duplication errors in work.
6. In companies where there is not a clearly defined structure, managers can take on extra responsibilities over time, which can result in them having an unreasonable workload. It can also make it difficult for other employees to understand exactly everyone's responsibilities. However, with a defined corporate structure in place, managers are typically responsible for a particular department.
7. Overall, a clear corporate structure helps the company achieve its goals and missions.
CONCLUSION
In summary,a company that seeks to achieve its goals must have a clearly defined corporate structure, so as to benefit both employers and employees.
