Limited liability company

Meaning of Limited Liability Company

A Limited Liability Company is a company in which the responsibility or liability of members for debts of the company is limited to the capital they have contributed or agreed to contribute.  The private properties of members are excluded, and all that members lose if the company fails is the money they have contributed.  It is formed and registered under the law known as the Company Act. When a company is formed and registered with the Registrar of Companies, it is said to be incorporated.

There are two types of Limited Liability Company namely, Private and Public Companies.

Public Limited Liability Company

A Public Limited Liability Company is a business unit that carries on business to make profit for its owners. Examples are Nigerian bottling company Ltd., Total Nigeria Limited, First Bank of Plc. It is owned by Shareholders and managed and control by Board of management.

Advantages of Public Limited Liability Company

1. It can raise money from the public through issuing of shares and debentures. This enhances the company expansion.
2. It is a legal entity because it can sue and can be sued.
3. The company’s properties are different from that of its owners.
4. It enjoys continuity because it has perpetual life. The company can only be wounded voluntarily or on the order of a law court.
5. Share holders cannot lose more than the value of their shares. This is because the company enjoys limited liability.

Disadvantages of Public Limited Liability Company

1. Shareholders have little say in the running of the company
2. It does not enjoy privacy. It annual account must be published in the Newspaper for the public to see.
3. It suffers from double taxation. The net profit of the company is taxed and the dividends of the shareholders are also taxed.

EVALUATION

1. What is a limited liability company?
2. State 3 advantages of public limited liability company.

Private Limited Liability Company

Meaning of Private Limited Liability Company

A private limited liability company is a profitable making business with few shareholders and no open market for its shares. Examples of private limited liability company are Newswatch Communication Ltd., Ekene Dili Chukwu Transport Service Ltd., JIMBAZ Construction Company Ltd. etc.

Advantages of Private Limited Liability Company

(i) They enjoy privacy.

(ii) Their annual report and accounts are not required by law to be published, except for taxation.

(iii) Management and control is less complex than in public limited company. Its management structure is simple.

Disadvantages of Private Limited Liability Company

(i) Shares cannot be issued to the public.

(ii) Capacity to raise external finance to expand business is limited.

(iii) Transfer of shares to others is made difficult.

Comparison between the Private and Public Limited Liability Companies

EVALUATION

1. State 3 advantages of a private limited liability company.
2. Enumerate 3 disadvantages of a private limited liability company.