Posted by Chester Morton / Friday 19 May 2017 / No comments
The advantages and disadvantages of a Limited Liability Company
ADVANTAGES OF A LIMITED LIABILITY COMPANY
Definition
A limited liability company can be defined as an
incorporated business enterprise allowing two or more people to put their
resources together to operate a business entity with the aim of making a
profit.
ADVANTAGES OF A OF A LIMITED LIABILITY COMPANY
Stocks transfer
One of the advantages of a limited liability company is
stocks mobility. This means that anybody who holds a share or shares is free to
sell to any buyer who is willing to buy at the price at which it is being
offered. It emphasizes seller-buyer satisfaction so once there is a seller and
there is a buyer, transaction is free to take place.
Ability to secure huge capital
Joint stock companies are in a position to secure large
capital from the sale of shares and from loans from financial institutions.
They are accountable
A limited liability company is designed to be public and
therefore is enjoined to open its books for public scrutiny. The accounts, thus
made public, allows for easy assessment by interested parties. Investors can
better assess the performance of the company and to determine whether they want
to invest in them or not. With the company account in the public domain, it is
a daunting task to steal from the company without being detected.
Protection of shareholders
Another advantage is that the investments of shareholders
are protected. In other words, where the company collapses, the private
properties of investors are not affected. They are only liable to as far as the
properties of the company is concerned.
Increased productivity
because they are usually large in size, it has the
potential to rip the benefits of large scale production often referred to as
economies of scale.
Continuity
A limited liability company often has a longer life span.
in contrast to sole ownership,the death of a shareholder must not result in the
company folding up. As long as the company remains solvent, the company's
operations would not come to a halt.
DISADVANTAGES OF THE JOINT STOCK COMPANY
Conflicts
Conflicts are a necessary aspects of human organization.
However, differences among shareholders of a limited liability companies and
management can easily pluralize the company's operations. This can result from
differences in opinions as to how the company should be managed and how the
company's profit must be used. conflicts may also come from views on how the
company should deal with a hostile take-over.
Difficult to start
It often more difficult to start a Joint Stock Company than
a sole ownership enterprise for example. This is due to the fact that starting
a Joint Stock Company requires
huge capital investment. Registering a Joint
Stock Company also demands that
the shareholders provide a lot of documents and go through a maze
of procedures before the company get registered or incorporated. The bureaucracy
and red-tapism at the Registrar-General’s department may result in some
owners of a Joint Stock Company to compromise business ethics to
get things through.
Detachment of directors from management
Unlike the sole proprietor, the shareholders and or
directors joint stock company are mostly detached from management, this can
minimize management's interest and commitment to advance the companies
objectives.
Undermines privacy
Joint Stock Companies also have the problem with keeping
company's operation away from public view. this because by law the accounts of
a Joint Stock Company are opened
to public scrutiny. Further, important
information pertaining to the company must be made available to the Registrar
of companies during and sometimes after the company is registered.
SAMPLE QUESTION
1. Outline six advantages and disadvantages of a Limited Liability Company.
