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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