Companies A company is a business entity that has been incorporated, that is, th

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Companies
A company is a business entity that has been incorporated, that is, th

Companies
A company is a business entity that has been incorporated, that is, the company has a separate legal identity from that of the owners. This means that the company can enter into contracts, make any legal claims and face any legal claims that are made against it (it can sue, and it can be sued).The owners of a company are referred to as shareholders.
Legal formation
Companies have a separate legal identity from their owners. Therefore, government insist that certain legal stages are completed before a company may be established to protect investors and creditors.All companies must be registered with the Registrar of Companies
Legal Documents Required to Form a Company:
1. Application for name search and reservation
This document is submitted to the registry of companies so that the relevant authorities,
verify that the submitted business name does not already exist.
2. The Memorandum of Association. This document provides general information about the
Company:
the name of the company
its location or address
the authorised share capital of the business as well as the types of shares to be issued
the objectives of the company
a declaration that the shareholders of the company have limited liability
3. The Articles of Association. This document provides guidance as it related to the internal
operation of the company. It outlines:
the number of shares the company is authorised to issue
the procedures for calling an Annual General Meeting (AGM)
the number of directors, and their rights and obligations
the procedures that govern the election of directors
policies or restrictions as they relate to the transfer of shares
policies and procedures for paying out dividends to shareholders
the borrowing powers of the company
4. Notice of Directors. This outlines the directors of the company
5. Statement of Authorised, Registered or Nominal Capital. This outlines the maximum
amount of shares that the company is authorised to raise.
6. Certificate of Incorporation. It outlines the date of incorporation of the business. It is
received when all other legal requirements have been met in in the application process, and
the required fee has been paid to the registry.
There are two types of limited liability companies.
1. Private Limited Company
Characteristics
usually has the abbreviation ‘Ltd’ at the end of the business name
has a minimum of one and a maximum of 50 shareholders
shareholders have limited liability (can only lose what they have invested if the business fails)
can only sell shares privately to people nominated by the other shareholders

Advantages

1. The shareholders have limited liability.
2. There is greater access to capital than in a smaller organisation.
3. All profits are retained by the owners.
4. There is continuity – if one shareholder dies, the business continues to exist.
5. Company financial statements are private. They are not required to be published.
6. Capable of employing greater experts and professionals to propel the growth of the business
further.
7. Shareholders are rewarded with dividends on profits.
Disadvantages

1. The company is only able to sell shares privately. This can limit the amount of capital it can
raise.
2. Shares are not easily transferable without the consent of other shareholders.
3. The decision-making process can be quite slow, given the number of shareholders that may
form part of the enterprise

Public Limited Company
Characteristics
has the abbreviation ‘plc’ at the end of the business name
has a minimum of two and no maximum number of shareholders
shareholders have limited liability
can sell shares publicly through a stock exchange

Advantages
1. All shareholders have limited liability.
2. Ownership and control are separate.
3. There is greater access to capital, as there are no restrictions on the numb of shareholders,
and shares can be offered for sale to the public.
4. The risk of the business is spread over many shareholders.
5. They can employ more and better experts and professionals to propel growth of the
business further.
6. Shareholders are rewarded with dividends on profits
Disadvantages
1. Financial statements must be audited and published.
2. The organisational structure may be complex and difficult to understand.
3. They lack the personal element that is common in smaller businesses.
4. There is a risk of losing control of the company if another company acquires a controlling

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