Hello welcome to this blog on features or characteristics of Limited Companies.
Table Of Contents
- Definition of Limited Company
- Types of companies
- Characteristics of Limited Companies
- Types of Limited Liability Companies
- Differences between private Limited company and public limited company.
- Sources of finance available to private limited company.
- Sources of finance available to public liability company.
Read Also
- Formation of limited liability companies
- Public relations, meaning, methods and Importance
- Public corporation, advantages and disadvantages
Definition of A Limited company
A company can be defined as a legal person or entity created by the association of a number of people in accordance with the law for the purpose of a defined object. Examples of companies in Nigeria include Nestle to Foods plc, Cadbury plc and Guinness Plc. A company is an artificial person and is more than a mere association of individuals. It is a legal person with a personality of it’s own.
TYPES OF COMPANIES
There are three types of companies which can be constituted under the company’s act 1968.
1. Companies Limited by shares: Companies limited by shares are the companies in which The liability of the members is limited to the full value of the share they have acquired. In case of liquidation, the shareholders will be liable to the full extent of their shares contributed as capital. They normally engaged in business activities. Session 21 (1) of the company and allied matters act 1990 define A company Limited by shares as a company having the liability of its members limited by the memorandum to the amount, if any unpaid on the shares held by them.
2. Company limited by guarantee: Companies limited by guarantee are not formed with the object of engaging in Trading activities. They are often formed by societies to promote and develop certain interest or profession. The liability of its members is limited by the memorandum of association to such amount as the members may undertake to contribute to the assets in the event of its being wound up. Guarantee companies are usually formed for The furtherance of art, religion and charity.
3. Unlimited company: In unlimited company, The liability of a member is unlimited and he may be liable to the full amount of the company’s debt in case of liquidation. The members will contribute more money including their capital to settle the debt of the company. Section 21 (1) of company and allied matters defines it as one not having any limit on the liability of members.
Features or Characteristics of Limited Companies
- Ownership: The business is owned by shareholders who may be between two and fifty persons in number.
- Objective: The major aim of private limited company is to make profits.
- Source of capital: The capital required to set up and run the business is provided by the shareholders in form of shares. However, shares are not sold to the general public. They are sold privately.
- Liability: The shareholders have limited liability. In the event of liquidation, the amount a shareholders can loss is limited to the fully paid up value of his share or the capital he has invested in the business. His personal assets or properties are protected by the law.
- Legal entity: The business is a separate legal entity and is different from the owners of the business. The business can Sue or be sued in its own name, without involving the owners.
- Continuity: There is continuity of business operations as the withdrawal or death of a shareholder may not affect the existence of the company.
- Shares are not easily transferable: Shares cannot be resold to other persons except with the consent of other shareholders.
- Management: The private limited company is managed by a board of directors appointed by shareholders.
Types of Limited Liability Companies
There are two types of limited liability company, namely: Private limited liability company and public limited liability company.
1. Private Limited Liability Company
Session 28 of the company act 1968 defines private liability company as one which by the articles
- Restricts the right to transfer its shares,
- Limit the number of its members from two to fifty.
- Prohibits any invitation to the public to subscribe to its shares
- the name of the private company must end with Limited, e.g, Newswatch Nigeria Limited.
2. Public Liability Company
Public liability company is defined by the section of the company act 1968 as one which by its articles
- Allows the public to subscribe to its shares
- must have a minimum of seven persons but no maximum number is prescribed
- allow the shares to be transferred
- Must end with Plc, e.g, First Bank PLC and Union bank Plc.
Similarities and differences between private and public limited liability companies
Similarities between private and public limited liability companies
- Legal entity or status: Both companies are legal entities, which means that they can Sue and be sued in their own names due to the fact that both are registered companies. The business name is different from the owner’s names.
- Limited liability: Both companies have limited liability, meaning that in the event of liquidation, the shareholders can only lose the value attached to the shares the contributed.
- Continuity of existence: The chances of continuity or existence of both companies are high as the death or withdrawal of a shareholder cannot affect the existence of the company.
- Ploughing back of profits: Part of the profit can be ploughed back into the business for both companies while the remaining can be shared to the shareholders, according to the amount of shares contributed.
- Large capital outlay: Both companies are capable of pooling large capital together to set up a business.
- Management: Both companies appointment directors for the proper and efficient management of the business.
Differences between private and public limited liability companies
Private Limited company – Public Limited company
- Shares are not easily transferable, except with the consent of their members – Shares are easily transferable in public limited company.
- It’s shares are not quoted in the stock exchange – Shares are quoted in the stock exchange.
- It has a minimum of two people as shareholders. – It has a minimum number of seven shareholders.
- It has a maximum number of fifty owners – It has no maximum number of people as owners.
- It does not issue debentures – It issues debentures.
- They are not allowed to use Plc, Ltd or Unltd. – They are allowed to use the abbreviation both Plc, Ltd.
- They do not need certificate of trading to commence business – They need certificate of trading before they can commence business.
- The public is not allowed to subscribe it’s shares – The public is allowed to subscribe for it’s shares.
- They are small or medium in size and have limited capital – They all large in size and have large capital.
- It is owned and control by those who contributed the capital – It is owned by the shareholders and who controled by the board of directors selected by them.
- It enjoy some level of privacy as it does not publicise it’s annual accounts – There is no privacy as the annual account must be published.
Sources of finance or capital available to a private limited company
- Loans and overdraft from banks.
- Shares raised by shareholders.
- Equipment leasing.
- Retained (plough back) profits.
- Trade credit.
- Hire purchase.
- Stocks.
- Sales of debentures.
- Factoring.
Sources of finance or capital available to public liability company (or joint stock company)
- Loans and overdrafts
- Sales of shares.
- Bill of exchange
- Sales of debentures.
- Equipment leasing
- Retained (plough back) profits.
- Trade credit.
- Hire purchase
- Factoring.
Revision Questions
- Give six features or Characteristics of limited companies.
- What is public limited company?
- What are the types of companies we have?
- What are the differences and similarities between private and public limited companies?