SS2 Commerce Lesson Note on Advantages and Disadvantages of Limited Companies

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Advantages and Disadvantages of Limited Companies

Advantages of Private Limited Company

1. Large capital – As a result of many shareholders who form the business, it can easily raise large capital.
2. Legal entity – it can sue or be sue in its own name case of liquidation of a company, the shareholders only their personal properties.
3. 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.
4. Continuity of existence – The death or withdrawal of a member cannot affect the existence of the company.
5. It enjoys some level of privacy as it does not publicise its annual accounts.
6. Efficient management – the business is efficiently managed by a board of directors appointed by the shareholders.
7. Large profits – because of their large size, they enjoy large profits.
8. Possibility of expansion – companies can easily expand because of the large capital available to set up and run the company.
9. Internal economics of large scale production the cost per unit of production is low for producing large quantities.

Disadvantages of Private Limited Liability Company

1. Limited capital: The capital of private company may be limited because it cannot raise capital on the stock exchange.
2. Shares are not easily transferable in a private company, without the consent of other shareholders.
3. Shares are not sold to the public: private company cannot sell its shares to the public thereby limiting its expansion and capital base.
4. Lack of personal contact – unlike in the sole trade, there is lack of personal contact with both the employers and customers.
5. Delay in decision taking – the board of directors or the shareholder must meet before any decision is taken resulting to waste of time.
6. Disagreement may arise between member which may affect the company negatively.

Advantages of Public Limited Liability Company

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