Posted by / Monday 22 August 2016 / No comments

The advantages of a limited liability company

Definition of Limited Liability Company
A limited liability company can be defined as an incorporated business enterprise. It allows two or more people to put their resources together to operate a business entity with the aim of making a profit.

Stocks transfer
One of the advantages of a limited liability company are 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, the 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 are concerned. 

Increased productivity
For the mere fact that 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.

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.

Conflict is a necessary aspect of human organization. However, differences among shareholders of 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 is 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 gets 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.

A 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 a problem with keeping the company's operation away from public view. This is because by law the accounts of a Joint Stock Company is open 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.

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