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Advantages and Disadvantages of Limited Companies
Advantages of Private Limited Company
- Large capital – As a result of many shareholders who form the business, it can easily raise large capital.
- Legal entity – it can sue or be sue in its own name case of liquidation of a company, the shareholders only their personal properties.
- Shareholders have limited liability. This means that in case of liquidation of a company, the shareholders only lose their shares that they have contributed and not their personal properties.
- Continuity of existence – The death or withdrawal of a member cannot affect the existence of the company.
- It enjoys some level of privacy as it does not publicise its annual accounts.
- Efficient management – the business is efficiently managed by a board of directors appointed by the shareholders.
- Large profits – because of their large size, they enjoy large profits.
- Possibility of expansion – companies can easily expand because of the large capital available to set up and run the company.
- Internal economics of large scale production the cost per unit of production is low for producing large quantities.
Disadvantages of Private Limited Liability Company
- Limited capital: The capital of private company may be limited because it cannot raise capital on the stock exchange.
- Shares are not easily transferable in a private company, without the consent of other shareholders.
- Shares are not sold to the public: private company cannot sell its shares to the public thereby limiting its expansion and capital base.
- Lack of personal contact – unlike in the sole trade, there is lack of personal contact with both the employers and customers.
- Delay in decision taking – the board of directors or the shareholder must meet before any decision is taken resulting to waste of time.
- Disagreement may arise between member which may affect the company negatively.
Advantages of Public Limited Liability Company
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