DEFINITION OF A COMPANY
A company can be defined as a legal person or entity created by the association of a number of people in accordance with the law for the purpose of a defined object. Examples of companies in Nigeria include Nestle Foods Plc, Cadbury Plc, Guinness Plc etc. A company is an artificial person and is more than a mere association of individuals. It is a legal person with a personality of its own.
Kinds of Companies
There are three kinds of companies which may be constituted under the Companies Act 1968.
- Companies Limited by Shares: Companies limited by shares are the companies in which the liability of the members is limited to the full value of the shares they have acquired. In case of liquidation, the shareholders will only be liable to the full extent of their shares contributed as capital. They normally engage in business activities. Section 21(1) of the Company and Allied Matters Act 1990 defined a company limited by shares as: a company having the liability of its members limited by the memorandum to the amount, if any unpaid on the shares held by them.”
- Company Limited by Guarantee: Companies limited by guarantee are not formed with the object of engaging in trading activities. They are often formed by societies to promote and develop certain interest or profession. The liability of its members is limited by the Memorandum of Association to such amount as the members may undertake to contribute to the assets in the event of its being wound up. Guarantee companies are usually formed for the furtherance of art, religion, charity, etc.
- Unlimited Company: In unlimited company, the liability of a member is unlimited and he may be liable to the full amount of the company’s debts in case of liquidation. The members will contribute more money including their capital to settle the debt of the company. Section 21 (I) of Company and Allied Matters defines it as one not having any limit on the liability of members.
FEATURES OR CHARACTERISTICS OF LIMITED LIABILITY COMPANY
- Ownership: The business is owned by shareholders who may be between two and fifty persons in number.
- Objective: The major aim of private limited company is to make profit.
- Source of capital: The capital required to set up and run the business is provided by the shareholders in form of shares. However, shares are not sold to the general public. They are sold privately.
- Liability: The shareholders have limited liability. In the event of liquidation, the amount a shareholder can lose is limited to the fully paid up value of his share or the capital he has invested in the business. His personal assets or properties are protected by the law.
- Legal entity: The business is a separate legal entity and is different from the owners of the business. The business can sue or be sued in its own name, without involving the owners.
- Continuity: There is continuity of business operations as the withdrawal or death of a shareholder may not affect the existence of the company.
- Shares are not easily transferable: Shares cannot be resold to other persons except with the consent of other shareholders.
- Management: The private limited company is managed by a board of directors appointed by shareholders.