Private & Public Limited Liability Company SS1 Economics Lesson Note

PRIVATE LIMITED LIABILITY COMPANY

A private limited liability company is defined as one which by its activities restricts the rights to transfer its shares, limits the number of its shareholders from two to fifty, and prohibits any invitation to the public to subscribe for its shares and the name of the private liability company must end with the abbreviation of limited. e g. Bluebird Nigeria limited, Ausmer Nigeria limited etc.

FEATURES/CHARACTERISTICS OF PRIVATE LIMITED LIABILITY COMPANY

– It is owned by two to fifty: the number of people that can form a private company should be between two and fifty.

– Restriction of shares: there is a restriction on the transfer of shares. The shares of a private company are not easily transferable.

– Limited liability: In the event of liquidation the shareholders lose only the total money invested in the business. The liability does not extend to their private property.

– Perpetual existence: The withdrawal or death of a shareholder may not affect the existence of the companies.

– Legal entity: it is recognized as a legal personality in law. It is quite district from the owners in the eyes of the law. The business can sue or be sued in its name, without involving the owner.

– Shares are not quoted on the stock market: its shares are not quoted on the market. Therefore they cannot be bought or sold on the stock market.

– Objective: the major aim of private limited companies is to make a profit.

ADVANTAGES OF PRIVATE LIMITED LIABILITY COMPANY

i. LARGE CAPITAL: A Private Limited Liability Company can easily raise capital as a result of the many shareholders that form the business.

ii. Shareholders have limited liability

iii. It has a legal entity

iv. Continuity of existence

v. Possibility of expression

vi. Large profit

DISADVANTAGES OF PRIVATE LIMITED LIABILITY COMPANY

i. LIMITED CAPITAL: The capital available in a private company is not as large as that of a public company because it cannot appeal to the public for extra capital through the issuing of shares.

ii. Shares are not easily transferred.

iii. Delay in decision-making.

iv. Lack of privacy: Financial statements are usually submitted to the registrar of companies annually.

v. It prohibits invitation to shares: it does not allow the public to subscribe to its shares.

PUBLIC LIMITED LIABILITY COMPANY

Public limited liability companies are owned by private individuals and organizations. In this type of company, the minimum number of people that can form it is seven, while it has no maximum number. Public is used here in the sense that any member of the public is free to purchase shares in the business when shares are advertised for sale and the name of the public limited company must end with the abbreviation ‘Plc’.

FEATURES/CHARACTERISTICS OF PUBLIC LIMITED LIABILITY COMPANY

– The number of shareholders ranges from seven to infinity.

– The business is a separate legal entity.

– The shareholders enjoy limited liability

– The business has a perpetual existence.

– Capital is raised through the issuing of shares i.e. shares are advertised for sale to the general public. Capital can also be raised by issuing debentures and by borrowing from banks.

– Shares are easily transferable: Any shareholder is free to sell his shares in the business any time he likes. Since the shares are quoted on the stock exchanges.

– The public limited company must have its account publicized, usually annually.

– Shares are quoted on the stock market.

ADVANTAGES OF PUBLIC LIMITED LIABILITY COMPANIES (PLC)

i. The business has large resources of capital because of the large number of shareholders in the company.

ii. Shareholders enjoy limited liability.

iii. The business risks are shared among  a large number of persons

iv. The business has a perpetual existence.

v. The shares of the company are easily transferable for cash

vi. The company can secure efficient managers and other skilled personnel

vii. The business is a separate legal entity.

DISADVANTAGES OF PUBLIC  LIMITED LIABILITY COMPANY

i. Lack of privacy in financial reporting.

ii. There is a delay in making decisions

iii. It is also difficult to set up a joint-stock company

iv. Large capital requirement

v. The shareholders cannot control the business

vi. There is a lack of personal contracts between the management and employees and between the company and its customers.