Types Of Organization Structure-Limited Company ( Part 3 of 3)

August 29th, 2006 Comments off
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Various Type Of Organization Structure

A business may be carried on in any one of the following form:

1. Sole proprietorship (Part 1 of 3)

2. Partnership (Part 2 of 3)

3. Limited Company

CHARACTERISTIC OF A LIMITED COMPANY

A limited company is incorporated and governed under the Companies Act. It can be categorized as follows:

  • A company limited by shares;
  • A company limited by guarantee;
  • An unlimited company with or without a share capital

COMPANY LIMITED BY SHARES

· The liability of a member’s contribution to the company’s assets is limited to the amount specified, unpaid on his shares, if any.

· Once the shares are fully paid up, there is, in general, no further liability, i.e. if the company becomes insolvent, or falls into liquidation, the members are not required to make any further contribution to discharge its debts.

· Thus, the total liability of a shareholder in a company limited by shares is his portion of the share capital.

· In other words, the personal assets of a shareholder would not be available to the creditors of the company unless a personal guarantee had been given by the shareholder.

· A company limited by shares can be:

· A private limited company

· A public limited company

PRIVATE LIMITED COMPANY

A private limited company is one which by its articles-

  1. Restricts the right to transfer its shares (the transfer may be subject to the approval of the directors);
  2. Limits the number of its members to fifty (the minimum being two);Â excluding employees and some former employees;
  1. Prohibits any invitation to the public to subscribe for any shares in or debentures of the company; and
  2. Prohibits any invitation to the public to deposit money with the company for fixed periods or payable at call.

PUBLIC LIMITED COMPANY

1. Cannot offer shares to the public unless a prospectus which complies with the requirements of the Companies Act has been registered with the Registrar Of Companies. The proposal for the issue or offer of shares to the public should first be submitted to the Securities Commission for approval before a prospectus can be accepted for registration. Such shares are freely transferable.

ADVANTAGES OF A LIMITED COMPANY

  1. Shareholders are not liable for the company’s debts beyond the amount of share capital they have subscribed, provided there has been no deceit, fraud or malpractice.
  1. Easy to transfer the ownership, either wholly or partially, through the selling of all or part of its total shares, or through the issue of new shares to additional investors.
  1. There is no need to wind up the company in the event of deaths, or changes amongst the shareholders or directors.

COMPANIES LIMITED BY GUARANTEE

  1. The liability of members is limited to such amount as they undertake to contribute to the assets on winding-up. That amount is specified in its memorandum of association, which forms part of a company’s constitution;

  1. If the company is wound-up, each person who is a member at that time or has been a member within one year of winding up, may be required to contribute up to the amount of his guarantee towards payment of the debts incurred while he was a member. Past members are liable only if the present members default;

  1. Such companies are invariably non-profit-making concerns. They include professional bodies, trade societies, clubs etc.

COMPANIES UNLIMITED

  1. There is no limit to the liability of the members. Such undertakings do not materially differ from partnerships or individual traders. A past member is liable only if he ceases to be a member within one year of the winding up. Unlimited companies must have special articles of association and are free to return capital to their members.

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