Private limited companies
IT IS so great to be conversing with you all once again. As business students, it is imperative that you understand the various forms of business that may exist. We have already discussed the sole trader, partnerships and co-operatives. This week, our focus will be on private limited companies.
Many partners see that they can gain more advantages by turning their businesses into companies. There are TWO main types of companies in the private sector of a mixed economy:
The private company and the public company.
PRIVATE LIMITED COMPANIES
This refers to an association of persons between one and 20 in number. Private companies may be limited liability companies or unlimited liability companies. They are usually limited liability companies. The members of a company are referred to as shareholders.
CHARACTERISTICS OF PRIVATE LIMITED COMPANIES
1. This type of business is usually a family affair.
2. They must be registered with the Companies Office of Jamaica. Registration requires certain information to be provided in a document known as the ‘Articles of Incorporation’. In Jamaica, there is a new Companies Act which came into being on February 1, 2005. It would be good for you to do some research on this act to understand the formation of private limited companies. When the registrar is satisfied that all aspects of forming the company have been complied with, they will issue a certificate of Incorporation, which gives the shareholders authority to carry on trade.
3. The company is a separate entity from its shareholders. Charges can, therefore, be brought against the company, but not against individuals.
4. Finance is usually through private means: borrowing from financial institutions, government agencies, and share and debenture capital.
5. Private companies do not make a public appeal for share capital.
6. The business enjoys limited liability.
7. The private company has ‘Co Ltd’ printed at the end of its name.
8. The life of the company is independent of the life of the shareholders. If a shareholder dies, the company continues to exist.
1.The private company must be registered with the Companies Office of Jamaica.
2. The business is considered a separate entity from its members.
1. A larger capital base can be obtained than with the sole trader and the partnership. This means they can expand more.
2. Privacy is retained, as the company does not publish its accounts.
3. There is continuity, as the company may have unlimited life.
4. There is limited liability for shareholders.
5. Most often, the business is restricted to family members.
1. It is not easy to transfer shares.
2. Capital and, therefore, growth may still be limited.
3. The public issuing of shares is not allowed by law.
4. Annual financial reports must be filed with the Companies Office of Jamaica.
5. Most often, the business is restricted to family members who may lack management skills and expertise.
Read over your notes on partnerships along with the notes above, then work on this question for your homework.
(a) Define ‘partnerships’ and ‘private limited companies’. (4 marks) (b) (i) List THREE types of partners. (3 marks) (ii) State THREE characteristics of partnerships. (3 marks)
(c) List the names of THREE private limited companies. (3 marks)
(d) What is the meaning of the term ‘limited’ in the names of the companies listed above? (2 marks) (e) State THREE characteristics of private limited companies. (3 marks)
(f) Give ONE advantage and ONE disadvantage of private limited companies. (2 marks)
TOTAL MARKS: 20 See you next week.