Limited Liability Company: Features, Advantages And Disadvantages

Table Of Contents

1. Meaning Of Limited Liability Company
2. Features Of Limited Liability Company
3. Types Of Limited Liability Company
4: Advantages Of Limited Liability Company
5. Disadvantages Of Limited Liability Company

Meaning Of Limited Liability Company

A limited liability company is usually formed by people who contribute to a common purse, for the purpose of running a business enterprise, in order to make profit. The contribution made to the capital of the company by each person is known as shares. A person who has shares in such company is a shareholder. The profits of the company are distributed as dividends to shareholders in proportion to the number of shares held by a shareholder. Losses are similarly shared among the shareholders. That is, each shareholder will lose only the amount( the value of shares) he has contributed to the business capital.

Unlike the sole trader or partnership, a shareholder cannot be asked to sell his personal property to pay the debt of the limited liability company. Limited liability means that the shareholder can lose only the amount of money he has invested in the company if the business fails.

Features Of Limited Liability Company

1. It uses the acronym “Limited” as part of its name.

2. It is an artificial person in the eye of the law.

3. Perpetual Success: The death of one shareholder does not lead to the end of the business, i.e it has an unlimited life span.

4. It is authorized by law to carry on a specific line of business.

5. It is owned by many persons known as shareholders.

6. Legal Entity: The limited liability company is a legal entity because it can sue and be sued.

Types Of Limited Liability Company

We must note that there are four types of Limited Liability Companies which are:

1. Private Limited Liability Company
2. Public Limited Liability Company(PLC)
3. Company Liability Guarantee
4. Unlimited Liability Company

Private Limited Liability Company

A private company can be formed by at least two people (shareholders) and at most fifty people. The private company is very popular in Nigeria. The major motive of its formation is profit. The private limited liability company can raise capital from contribution of members, which is converted into shares, loans, and overdrafts from bank credit facilities from suppliers etc.

Public Limited Liability Company

A public company must have a minimum of seven shareholders with no upper limit or maximum members. It can have thousands of shareholders. The word public does not mean that the company belongs to the government. It simply means that any member of the public is free to buy shares in the company. Example of public limited liability. Liability companies are; United African Company Limited(UAC), Diamond Bank PLC, Nigeria PLC,United Bank For African(UBA),Guinness Nigeria PLC, First Banks Of Nigeria PLC, etc.

Public limited liability company can raise capital from value of share sold to the public, Banks loans and overdrafts, credit facilities from suppliers.

Company Liability Guarantee

Some companies are formed with the sole aim of not making profit but with a focus on the promotion science, education, art, religion etc. Such companies are not formed with huge capital, but those who form them usually promise to contribute extra capital in case the company incur debts, in order to offset the debts: As a result, the limited company by guarantee can raise capital from charitable contribution by members of the public.

Unlimited Company

Owners of this type of company has unlimited liabilities of the members do not end with the capital they contributed in the formation of the company. If this company runs into debt, the owners will have to contribute more money or sell their properties in addition to loss of the capital they contributed in forming the business, to settle debts.

Advantages of Limited Liability Company

1. Legal Entity:

The company is distinct from its owners and cannot be sued together with the owners of the company.

2. Large Capital:

This is as a result of the number of people that come together to form it.

3. Enjoyment Of Large Scale Production:

Huge capital base makes it possible to produce in large quantity hence enjoys the benefits of large scale production.

4. Risk Bearing:

Risk is limited to the shares of members.

5. The shareholders enjoy limited liability;

6. Perpetual Succession:

It has greater assurance of continuity than other business units;

7. Employment Opportunities:

A limited liability company offers more employment opportunities than a private company or partnership business.

READ ALSO: Business Opportunities: Meaning And Types Of Business Opportunities

Disadvantages Of Limited Liability Company

1. Hard To Establish:

The formalities for its establishment are very complicated.

2. Greater Capital:

It requires huge capital to establish a limited liability company;

3. Ownership Is Separated From Management:

The controllers of the business are not the real owners of it as nobody’s business;

4. Lack Of Personal Touch:

The employees cannot say who they are actually working for. There is much formal relationship. This may not achieve commitment to high productivity.

5. The statement of account of the company must be made public i.e there is no privacy in the company.

6. Lack Of flexibility:

This reduces the chances of quick decision making or policy formulation as well as its implementation.

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