Cambridge AS A Level Business Studies/ ZIMSEC Advanced Level Business Studies/ Business Enterprise Skills Notes: Types of businesses: Private Limited Companies

  • As we have already mentioned, there are many specific types of limited liability companies in existence throughout the world
  • However, there are two main general types of limited liability companies:
    • Private limited liability companies and public limited liability companies
  • Here we will look at the features, advantages and disadvantages of private limited liability companies

The Features of a Private Limited Company

  • These are closely held limited liability companies usually owned by friends and family
  • A private limited liability company is treated as a separate juristic person
  • This means it can sue and be sued in its own name and
  • It does not cease to exist upon the death of one of its shareholders
  • The number of shareholders is limited from 2-50 and
  • The sale of shares on the private on the Stock exchange is prohibited.
  • Shareholders’ right to sell shares is limited i.e they have to consult other shareholders before they can sell their shares
  • Shareholders can operate the company themselves or
  • They can elect a Board of Directors during the Annual General Meeting (AGM) to operate the business on their behalf.
  • In most jurisdictions, the name ends with the words Private Limited Company (PVT LTD) or some other equivalent words e.g. LLC in the United States,
  • Its affairs are governed by the Memorandum and Articles of Association,
  • It is registered under the Companies Act or other similar Acts/laws in other countries

Advantages of private limited companies

  • The shareholders have limited liability, it’s important to remember its the shareholders who have limited liability
  • There is continuity after the death of each member
  • Companies are not required to publish their private accounts
  • More capital can be raised as the company can have more than 20 members unlike a partnership
  • There is more scope for expansion and growth
  • Because sell of shares is limited there is less risk of hostile takeovers or loss of control

Disadvantages

  • Decision making is much more complex and convoluted.
  • Members and the company itself cannot sell their shares publicly so the amount of capital that can be raised is limited.
  • Shareholders cannot freely sell their shares without consulting with other shareholders
  • Profits are shared among many members
  • The procedure to form these is more complex
  • There is the possibility of double taxation

To access more topics go to the Advanced Level Business Studies page

To access more topics go to the ZIMSEC Business Enterprise and Skills page

To access more topics go to the Cambridge AS A Level Business Studies page

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