Private limited companies
Yvonne Harvey, Contributor

Students and teachers of the May Pen Unit for the Deaf proudly show off their winning entries at the Jamaica Cultural Development Commission's Traditional Food and Folk Competition in Kendal, Manchester, on Friday, June 9. - Nathaniel Stewart/Freelance Photographer

Hi everyone. We are still looking at the types of businesses in a mixed economy. Were you able to list the disadvantages of the partnership? I will list the main ones for you below and you can compare them with the ones you were able to find from your research. The lesson will then continue by considering another private sector type of business - The private limited company.

DISADVANTAGES OF PARTNERSHIPS

1. Unlimited liability for ordinary partners and for unlimited partners.

2. Lack of continuity.

3. Disagreements often occur among partners.

4. All partners will lose if one partner makes a bad decision.

5. Capital is still limited since there can only be a maximum of 20 partners.

6. Difficulty in finding suitable partners.

Many partnerships 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 COMPANY

This refers to an association of persons known as shareholders, from 1 to 50 in number. Private companies may be limited-liability companies or unlimited-liability companies. They are, however, usually limited- liability companies.

Characteristics

1. This type of business is usually a family affair - that is, run by family members.

2. It must be registered with the Registrar of Companies. Registration requires certain documents: The Memorandum of Association and The Articles of Association. The Memorandum of Association governs the company's relationship with the outside world. It contains information such as the name of the company, the objectives of the company and the authorised capital of the company. The Articles of Association governs the internal running of the company and, as such, it outlines the powers of directors, borrowing powers of the company, the rights and priorities of members at meetings, etc.

A statutory declaration signed under oath must accompany these documents. This states that they have complied with the requirements of the Companies Act. A statement of limited liability is also needed. When the registrar is satisfied, a Certificate of Incorporation will be issued and the company can now carry on trade.

3. The company is a separate entity from its share- holders. Therefore, charges can only be brought against the company, but not against any individual of the company.

4. Finance is usually through private means, borrowing from financial institutions, government agencies and through share and debenture capital. A later lesson will discuss the raising of capital through share and debenture issues.

5. Private companies do not make a public appeal for share capital.

6. This business enjoys limited liability.

7. The private company has 'Co. Ltd' at the end of its name.

8. The life of the company is independent of the shareholders. If a shareholder dies the company continues to exist.

Legal Aspects

The private company must be registered with the Registrar of Companies.

The business is considered to be a separate entity from its members.

ADVANTAGES

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. Continuity. The company may have unlimited life.

4. There is limited liability for shareholders.

5. The business is a separate entity from its investors.

DISADVANTAGES

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 Registrar of Companies.

5. Most often, the business is restricted to family members who might not have the experience and expertise to make the business a success.

Now here's your assignment:

(a) List the names of three private limited companies in your country. (3 marks)

(b) What is the meaning of the term 'limited' in the names of companies? (2 marks)

(c) State three characteristics of private limited companies. (3 marks)

(d) Give one advantage and one disadvantage of private limited companies.
(2 marks)

Total marks: 10

Over the next two weeks, we will review some special types of private companies. These include multinational corporations, conglomerates, franchises and holding companies. You will find it useful to read ahead.

See you next week.

Yvonne Hardy teaches at Glenmuir High School.