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Types of Limited Liability Company Advantages and Disadvantages

Kinds, Advantages and Disadvantages of Limited Liability Company.

Limited liability company also known as joint stock company (JSC) is a business organization owned by 2 to limitless number of persons. This form of business organization is managed by directors who are usually appointed democratically at Annual General Meetings (AGM).

Kinds of Limited Liability Company.

There are two distinctive kinds of limited liability company also known as Joint stock company. They are;

  1. Private Limited Liability Company
  2. Public Limited Liability Company

 

PRIVATE LIMITED LIABILITY COMPANY.

This is a kind of JSC where a maximum membership of 50 persons and minimum number of 2 persons are required; no member of this group can transfer shares without the knowledge of all members. Shares here are not quoted at the stock exchange market and the public is not invited to subscribe for the shares. Family members usually own this kind of company. Companies in this group have “Ltd” as the last word in their names.

PUBLIC LIMITED LIABILITY COMPANY.

This is a company in which membership ranges from 7 to infinity. A lot of legal formation formalities must be followed from registration until dissolution of the company. Shares are easily transferable and the public may be invited to subscribe for shares of the company. Capital is usually no problem here.

Expansion is rapid as capital for expansion can easily be borrowed from or realized through sale of shares. The account of this company published and audited annually.

At the early stage of formation of a limited liability company or JSC, two documents are usually sent to the registrar of companies. They are;

  • Articles ofAssociation.
  • Memorandum ofAssociation.

While the Articles ofAssociation specifies the relationship among members, the Memorandum of Association states the relationship between the company and the outside world. Whenever a company is formed, a certificate of incorporation must be issued to the company by the Registrar of Companies.

Advantages of Limited Liability Company.

These include:

  • Limited liability
  • Capital for expansion
  • It has perpetual existence
  • It enjoys the economies of large-scale production
  • It creates avenue for investment of capital by small business.
  • It is a veritable ground for training of career business men with enormous administrative ability and entrepreneurial expertise.

 

Disadvantages of Limited Liability Company.

These include:

  • No privacy and thus high tax rate
  • They may grow to giant oligopoly
  • Conflict of ideologies between shareholders and directors
  • Possibility of insider trading
  • Impersonal relationship between management and customers or suppliers.