ZIMSEC O Level Commerce Notes: Business Organisations: Private Limited Companies

  • Its operations are governed by the Companies Act.
  • Formed by 2-50 shareholders.
  • In other countries a company is formed by 2 or more people with no maximum number of shareholders.
  • Has a lot of legal formalities including:
  • It has to create an Articles of Association, Memorandum of Association and a Statutory Declaration.
  • All these documents have to be submitted to the Registrar of Companies.
  • It is registered by a Certificate of Incorporation by the Registrar of Companies.
  • The name of the company ends with “PVT” Limited.
  • It is a separate legal entity i.e.:
  • It exists as a separate juristic person.
  • It is independent of its owners.
  • It can sue or be sued in its own name.
  • The company can make its own contracts.
  • It is owned by shareholders.

Control and Management

  • Controlled and managed by a Board of Directors.
  • These are elected by shareholders.
  • The election takes place at the Annual General Meeting.
  • A Managing Director (sometimes known as a Chief Executive Officer) who is chosen by the Board of Directors runs the business on a day to day basis.
  • A company must have at least one Director.
  • Directors must report back on the company’s performance to the shareholders at least once a year.
  • Ordinary Shareholders vote at the Annual General Meeting to pass resolutions.
  • Financial Accounts are not published, they are only filled with the Registrar of Companies.
  • There are limitations on how shares can be transferred.
  • Can choose whether or not to appoint an external Auditor.


  • All shareholders have limited liability.
  • This means that they only lose the amounts that they invested and not their personal property.

Raising of Capital.

  • Through the sell of shares to individuals who are privately invited.
  • By ploughing back profits ( Retained Earnings)
  • Loans and overdrafts from banks.
  • Mortgage Finance.
  • Trade credit.
  • Buying on Hire Purchase.
  • Leasing of Fixed Assets.
  • Debt Factoring

Distribution of Profits

  • Are paid as dividends to shareholders.
  • Are ploughed back into the business (Retained Earnings)
  • Used to pay taxes.
  • Are set aside as General Reserves.
  • Used to service loans and Overdrafts.
  • Used to sponsor activities e.g. charity organisations.

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