ECONS 101

PRIVATE LIMITED LIABILITY COMPANIES

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A Private Limited Liability Company is defined as one which by its articles restricts the rights to transfer its shares, limits the number of its shareholders from two to fifty, 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. Burberry Nigeria Limited, News watch Nigeria Limited etc.

FEATURES/CHARACTERISTICS OF PRIVATE LIMITED LIABILITY COMPANIES:

a.  Ownership- The business is owned by shareholders who may be between two and fifty persons in number.

b. Objective- The major aim of Private limited company is to make profit.

c. Source of Capital- The Capital required to set up and run the business is provided by the shareholders in form of shares. However, shares are not sold to the general public. They are sold privately.

d. Liability- The Shareholders have limited Liability. In the event of Liquidation, the amount a Shareholder can lose is limited to the fully paid up value of his share or the capital he has invested in the business. His personal assets or properties are protected by the law.

e. Management- The Private Limited Company is managed by a board of directors appointed by shareholders.

f. Legal Entity- The business is a separate legal entity and is different from the owners of the business. The business can sue or be sued in its own name, without involving the owners.

SOURCES OF FINANCE/CAPITAL AVAILABLE TO PRIVATE LIMITED COMPANIES:

# Loans and Overdraft from Banks- These can be obtained from Commercial or Development Banks.

# Hire Purchase- Facilities cab be granted to the company to buy and pay by installments.

# Trade Credit- Raw Materials can be purchased by the company on credit.

# Shares raised by Shareholders- Shares are usually raised by shareholders (owners), which form the capital base of the company.

# Equipment Leasing- Equipment can be leased out by companies for money.

ADVANTAGES OF PRIVATE LIMITED LIABILITY COMPANY:

# Large Capital- Private limited liability company can easily raise capital as a result of many shareholders that form the business.

# Large Profits- Private limited liability companies do enjoy large profits because of their large size.

# Continuity of Existence- The chances of continuity of existence is high as the death or withdrawal of a shareholder cannot affect the existence of the company.

# It has Legal Entity- Private limited liability company can easily raise capital as a result of many shareholders that form the business.

# Shareholders have Limited Liability- In the event of business failure, the shareholder only losses his shares which he has contributed and his personal properties or assets are protected.

# It enjoys Internal Economies of Large Scale Production-As long as the enterprise is large, production can be carried out on a large scale, leading to economies of production/scale.

# Possibility of Expansion- The business can easily expand because of the large capital available to set up and run the company.

DISADVANTAGES OF PRIVATE LIMITED LIABILITY COMPANY:

# Lack of Personal Contact- There is less personal Contact with both the employees and customers, unlike in the Sole Proprietorship and Partnership.

# Lack of Privacy- There is lack of Privacy as companies are required to publicize their accounts.

# Limited Capital- As a result of few number of shareholders coupled with the fact that shares cannot be sold to the public, the capital available for use is limited.

# Delay in Decision Making- Before any decision is taken on any crucial matters, the board of directors or the shareholders must meet and this tends to waste a lot of time.

# Shares are not sold to public- The Private limited company cannot sell its shares directly to the public. This acts as a limitation to the capital base and to expansion.

# Payment of Corporate Tax- Private limited companies are usually required to pay corporate tax, unlike personal income tax paid by sole proprietorship and Partnership.

# Shares not easily transferable- A Shareholder cannot sell his shares without the consent of other shareholders.

NOTE: PARTS OF THIS POST WERE CULLED FROM TONAD ESSENTIAL ECONOMICS FOR SENIOR SECONDARY SCHOOLS BY C.E ANDE.  WE AT EDU-MADE-EASY RESPECT THIS CRAFT TOO MUCH TO DENY ITS ORIGIN. THANK YOU

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