Limited Companies Essay

655 words - 3 pages

What is limited liability? Limited liability is a type of investment in which a partner or investor cannot lose more than the amount invested. Thus, the investor or partner is not personally responsible for the debts and obligations of the company in the event that these are not fulfilled.

The ownership of companies is divided into small units called shares. People can buy these and become “shareholders”- part owners of the business. All shareholders benefit from the advantages of limited liability. Nobody can make any further claim against shareholders. Limited liability assures shareholders that the only potential loss that they risk is the amount of money they have put into the company, not their total wealth. Each year, the company may decide to distribute some of its profit to its shareholders. The money is distributed proportionally according to how many shares you own-which is called a dividend.

A limited company has a legal existence separate ...view middle of the document...

However, high taxes, smaller dividends are some disadvantages of a private limited company. Many private limited companies are very profitable, but these profits become diluted because they have to be distributed evenly among all shareholders. A private limited company is very expensive to establish, as legal fees or other incidentals involved in the business must be paid.

This is the reason why some companies decide to become public. A public limited company is an incorporated business, and is run by the Bord of Directors. It has all the advantages of private company status, plus the right to advertise their shares for sale and have them quoted on the stock exchange, moreover, the original owner is still often able to retain control.

Existing shareholders may also quickly sell their shares if they wish so but it is quite difficult. This flexibility of share buying and selling encourages the public to invest in the business because they can get their money back easily. Many companies start of as a private limited company and later become public to raise capital in order to expand and develop the company, which can play a vital role in the competitive market. Large amounts of capital can be raised in relatively short periods because of the company's size and the security it offers.

Nevertheless, when a private company becomes public, the original shareholder may lose control of the company. Accounts are public which means a lack of privacy and the company has to pay for an auditor to independently check the accounts.

Furthermore, divorce of ownership from control can lead to a conflict of interest, as the aims of the shareholders, directors and management may not be the same. For example, directors may want to grow the business over the long-term in order to increase their power and status whereas shareholders might prefer measures that aim at short-term profits. Thus, shareholders may be expecting a quick, high return on their money.

Following on from this, a public limited company is also at risk from a takeover from an outside body, if they manage to accumulate over 50% of the shares in the company.
In conclusion, owners have many factors to take into account before becoming a public limited company, the advantages and the disadvantages.

Other Essays Like Limited Companies

Business Studies Essay

1034 words - 5 pages advantages and disadvantages, benefits and constraints of this form of ownership? Safeway is a Public Limited Company (Plc). A Public Limited Company tends to be larger than a Private Limited Company. A Public Limited Company can be abbreviated as Plc. There are around 1.2 Million registered limited companies in the U.K., but only around 1 per cent of them are public limited companies. However, they contribute far more to national output and employ far

Types of Business Enterprises Essay

1541 words - 7 pages . 2. Proprietor gets less social security benefits 3. Finance is difficult to raise as lenders prefer to lend to companies or partnerships. 4. Business is harder to sell or pass down to children because there is no separate legal entity to transfer 5. Sometimes customers prefer to deal with limited companies than sole traders as they feel more secure Partnerships Partnerships are quite similar to sole trader businesses

Partnership

578 words - 3 pages companies are liable for any debts owed by the firm; this means that if they are unable to pay off their debts, they may have to liquidate the firm’s assets or their own personal assets to cover their debt. Partnerships have no separate legal entity, therefore in the case of a law suit, the prosecutor sues the partners of the company and not the partnership’s firm name, which unlike public limited companies; shareholders have a corporate

Llc vs Llp

794 words - 4 pages The Roles of Limited Liability Partnerships and Corporations The majority of large companies which we purchase goods and services from are established as a limited liability corporation, corporation or limited liability partnership. Corporations were established in an effort to protect business owners, and have now turned into many complex variations (ehow). A limited liability company is not a partnership or a corporation, it is a hybrid

Fin515-Wk1

665 words - 3 pages liability is limited to their investment and limited liability companies means a limited partnership without a general partner. Problem 1.3 Corporations and limited liability companies give owners limited liability. Limited partnerships provide limited liability for the limited partners, but not for the general partners Problem 1.4 Advantages: * Limited liability and perpetual life * Stockholders, directors, officers are typically

Describe the Main Characteristics of Small Industrial Business

690 words - 3 pages corporation. In the smallest sense, a small business could simply be an owner-operator or an owner-manager-employee setup. Other small businesses are a bit larger with a few hundred employees working together in a building or area. A small organizational structure can improve communication among employees at each level or in different stores in a chain. Limited Budget A key constraint for small-scale businesses relative to larger companies is

Oil Company

856 words - 4 pages Top 10 NGO’s 1. Ushahidi- 2. Danish Refugee Council- 3. Médecins sans Frontières- 4. CARE International- 5. PATH- 6. Oxfam- FMCG companies in India 1. Hindustan Unilever Ltd. 2. ITC Limited 3. Britannia Industries Ltd. 4. Nestlé India- 5. Godrej Group 6. Tata Global Beverages 7. Parle Agro 8. Nirma 9. Cavin Kare 10. GCMMF (AMUL) 11. Cadbury India 12. Procter & Gamble Hygiene and Health Care- 13. Colgate-Palmolive (India) Ltd

Investigation Of The Types Of Business Ownership

1064 words - 5 pages each partners rights in the event of a dispute, they cover issues such how the profits and losses will be shared amongst the partners, the rules for taking on new partners, the procedure for ending the partnership and all legal formalities. Public Limited Companies (PLC). This type of limited company tends to be larger than private limited companies. In order to become a public limited company the memorandum of

Business Law Study Guide

1123 words - 5 pages business. This week also provides an introduction to the various forms of business. Small businesses, entrepreneurs, and general partnerships are explored. You discuss how a corporation is formed and how it can be financed. Finally, you study limited liability companies and limited partnerships, as well as franchises and special forms of business. This week further introduces you to the concept of alternative dispute resolution as a method

Mr. Darlingtone

3708 words - 15 pages study assumes that all the participating companies practices responsible marketing. Second, the study assumes that all participants will give honest information according to their personal capabilities. Last, the study assumes that all marketing practices are non-profitable. 1.7 Limitations and delimitations The study is limited to companies in the United States of America. Therefore, applying the findings of this study to the entire global

Jsb Market Research : India Oil Markets, 2013

2491 words - 10 pages . It also provides information relating to the crude oil assets (oil fields, refineries, pipelines and storage terminals) in India. The report compares the investment environment in India with other countries in the region. The profiles of the major companies operating in the crude oil sector in India together with the latest news and deals are also included in the report. Scope Historic and forecast data relating to production, consumption

Related Papers

Types Of Companies Essay

1659 words - 7 pages * Depending on the business type, this may mean low factory emissions, electronic billing, biodegradable packaging or use of alternative energy sources, such as wind. ` Types of companies The following are the various types of registered company. Apart from these, a business may be set up as a sole trader (self-employed person), as a partnership or as a Limited Liability Partnership (LLP). * Private companies limited by shares * Public

Romanian Companies Essay

595 words - 3 pages shares of these corporations to be involved for loans or other banking operations. Shares cannot be freely exchanged, making limited liability companies, more or less, like private companies in other countries. Limited liability companies may very well be constituted by only one individual. The law stipulates that resolutions are made by mainstream ballot in the General Meeting of Shareholders (each share represents one vote). Decisions

Producer Company Concept Essay

1422 words - 6 pages The new concept of producer companies TILL RECENTLY, the Companies Act, 1956 (the Act), recognized only three types of companies, namely, companies limited by shares (sub-divided into public limited and private limited companies), companies limited by guarantees and unlimited companies. With the coming into force on February 6 of the Companies (Amendment) Act 2002, (1 of 2003), a fourth category, `producer companies,' finds a place in the Act

Business Legal Structures Essay

569 words - 3 pages who own it. * PUBLIC LIMITED COMPANY: A business with limited liability, share capital of over £50,000, at least two shareholders, two directors, a qualified company secretary and usually, a wide spread of shareholders. It has ‘plc’ after the company name. Institutional Investors: Institutional investors are pension funds, insurance companies, banks and other financial organisations that invest huge sums of money in the shares of the