Limited companies

Also known as Joint stock companies. These are business where a number of owner(shareholder) pool in their resources to do a common business and to share the profits and losses proportionally.
In a limited company, the debts of the company are separate from those of the shareholders. As a result, should the company experience financial distress because of normal business activity, the personal assets of shareholders will not be at risk of being seized by creditors. Ownership in the limited company can be easily transferred, and many of these companies have been passed down through generations.

Difference between Limited companies and partnership

Limited companies can issue shares whereas partnership business cannot.

Shareholders enjoy limited liability in Limited companies. It means that if the company experience financial distress because of normal business activity, the personal assets of shareholders will not be at risk of being seized by creditors. Whereas partnership business does not have limited liability except for limited partnerships.

Separate Identity: Limited companies are considered as human beings in the eyes of the law. They are born and die in the eyes of law. They can sue and get sued on their own name.

Continuity: There is continuity of existence in limited companies and are their existence is not affected by the death, bankruptcy or sickness of their owner. This is not the case in Partnership or sole trader businesses.

There are two main types of Limited companies. These are:

• Private Limited Company
• Public Limited Company

• Private limited Companies

  These are closely held businesses usually by family, friends and relatives.
  Private companies may issue stock and have shareholders. However, their shares do not trade on public exchanges and are not issued through an initial public offering.
  Shareholders may not be able to sell their shares without the agreement of the other shareholders.

  Advantages

  Limited Liability: It means that if the company experience financial distress because of normal business activity, the personal assets of shareholders will not be at risk of being seized by creditors.
  Continuity of existence: business not affected by the status of the owner.
  Minimum number of shareholders need to start the business are only2.
  More capital can be raised as the maximum number of shareholders allowed is 50.
  Scope of expansion is higher because easy to raise capital from financial institutions and the advantage of limited liability.

  Disadvantages

  Growth may be limited because maximum shareholders allowed are only 50.
  The shares in a private limited company cannot be sold or transferred to anyone else without the agreement of other shareholders.