Limited Liability companies

Limited Liability Companies

Definition of Limited Liability Companies

There are two types of Limited Liability Companies – Private Limited Liability Company or ‘the closed company’ and the Public limited liability company or the Public joint stock company.

The Private Limited Liability Company (Unquoted Company)

A private limited liability company is defined as one which by its articles restricts the right to transfer its shares and limit the number of its shareholders from two to fifty. The name of the private company must end with “Limited” e.g. AGRO Nigeria Limited etc.

Features or Characteristics of Private Limited Liability companies

1. Ownership: It is owned by shareholders that may be between two and fifty persons in number.
2. Legal entity: The business can sue or be sued in its own name, without involving the owners.
3. Management: It is owned by those who contributed capital for its formation.
4. They are not allowed to use the abbreviation Plc, but “Ltd” or “UnLtd”.

The Public Limited Liability Company (Quoted Company)

A public liability company is defined as one which by its articles allows the public to subscribe to its shares, must have at least seven persons but no maximum number is prescribed. The shares can be transferred and the name of the public company must end with “PLC”, e.g. GTBank Plc., Vitafoam Nigeria Plc. etc. This is the type that is popularly referred to as Joint Stock Company.

In the activities of a joint stock company, two documents are dominant. These are;

1. The Articles of Association:The Articles of Association takes care of the internal relationships between the company and the members
2. The Memorandum of Association:The Memorandum of Association is meant for regulating the external relationship of the company.

Features or Characteristics of Public Limited Liability Companies

1. Ownership: The number of shareholders ranges from seven to infinity i.e. there is no maximum number.
2. Legal entity:It can sue and be sued in its own name.
3. Management:It is owned by the shareholders but controlled by the board of directors.
4. Public companies use the abbreviation Plc., meaning Public Liability Company.

Similarities between Private and Public Liability Companies

1. Management: Both companies appoint directors for the proper and efficient management of the business.
2. Limited Liability: Both companies have limited liability. This means that the shareholders can only lose the value attached to the shares they contributed in the event of liquidation.
3. Large capital outlay:Both companies have ability of pooling large capital together to set up a business.
4. Ploughed 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 share holders, according to the amount of shares contributed.
5. Legal entity: Both companies are legal entities, meaning that they can sue and be sued in their own names due to the fact that both are registered companies.

Distinction between Private and Public Companies

EVALUATION (Post ANSWER BELOW FOR EVALUATION AND DISCUSSION)

1. Mention types of Limited Liability Companies
2. Mention examples of Public Limited liability Company
3. List two and explain characteristics of private limited liability companies
4. Explain differences between private and public limited companies