Business Studies, JSS 1, Week 7
Topic: Limited Liability Company
Contents:
- Meaning of a Limited Liability Company
- Types of Limited Liability Company
- Sources of capital
Meaning of a Limited Liability Company
Limited Liability Companies is usually formed by people who contribute to a common purse for the purpose of making running a business enterprise with the aim of making a profit.
The contribution made by each person is called shares; a person who contributes his shares is then referred to as shareholder. A shareholders shares profit in proportion to the number of shares held.
Limited Liabilities mean that a shareholder can only lose only the amount of money he has invested in the company if the business fails or fold up.
Types of Limited Liabilities Companies
There are two types of Limited Liability Companies which are:
- The Private limited liability company: It is a joint stock company formed by at least two people (shareholders)
Sources of capital
- Retained profit
- Contributions of members which is regarded as shares
- sales of new shares
- Loans and overdraft from banks
Advantages of private limited liability company
- The shareholders enjoy limited liability privileges
- The profit and loss of the business is shared
- Private limited companies do not need to publish their accounts
- They can raise more capital than partnership or sole proprietorship
- The death or withdrawal of a member cannot bring the business to a close
Disadvantages of private limited liability company
- Members cannot freely transfer their shares except with the permission of other members
- It is more expensive in terms of legal requirements etc.
- It cannot be bought or sold on the stock exchange.
2. The public Limited liability company: This can be formed by minimum of seven persons (shareholders) and there is no limit to number of shareholders.
Sources of capital
- Bank loans and overdraft
- Retained profits
- Credit facilities from suppliers
- Value of new shares sold to the public
Advantages of Public Limited Liability Company
- It can easily attract loans from banks
- Shareholders are free to transfer their shares by selling
- The shareholders enjoy limited liability privileges
- The death of a shareholder cannot bring the business to a close
- Because of large size, the company can take advantage of large scale production
Disadvantages of Public Limited Liability Company
- The accounts of the public limited company must is published to the general public
Test and Exercise
- Which one of these can sell his shares on the capital market? (a) a partnership (b) a sole proprietorship (c) private limited liability company (d) public limited liability company
- All these are sources of capital for private limited liability company except (a) retained profit (b) loans from bank (c) contributions from members which are converted into shares (d) borrowing from under-aged
- The contribution made by each member to be a part of business is called (a) shares (b) bills (c) shares (d) debentures
- The types of Limited Liability Company is all except (a) private (b) public (c) ordinary (d) none of the above
- The least number of shareholders in a public limited liability company is (a) 2 (b) 7 (c) 5 (d) 10 http://passnownow.com/classwork-support/
