The company is the most effective vehicle yet in managing and controlling modern business enterprise. Other forms of organisation also maintain this goal, but most business is transacted via companies. In fact, the company pervades economic and social life all over the world, because of the advantages it enjoys over other forms of organisation. Companies can be classified based on their mode of incorporation, the liability of its members as well as the number of members. In this article we\u2019ll look at the main classes of companies and their advantages.<\/p>\n\n\n\n
In this class of company limited by shares, the company has full should it go into debt. \u2018Limited by shares\u2019 means that the liability of shareholders to creditors of the company is limited to the capital they originally invested. The shareholder\u2019s liability is only the amount unpaid of their shares. Companies limited by shares end with the word \u2018Limited\u2019 e.g.\u00a0 East Africa Breweries Limited (EABL), Kenya Airways Limited etc.<\/p>\n\n\n\n
Companies\nlimited by shares may be Private or Public.<\/p>\n\n\n\n
Private\ncompanies have no authorised minimum share capital and member\u2019s rights to\ntransfer shares are restricted. Private companies prohibit invitations to the\npublic to subscribe for shares in the company. A private company is only required\nto have one director and it can be formed with only one member. <\/p>\n\n\n\n
Public\ncompanies allow their members the right to transfer their shares in the company\nand allow invitations to the public to subscribe for shares in the company. A\npublic company must have at least two shareholders and at least two directors.<\/p>\n\n\n\n
The\nadvantages of a company limited by shares are that they allow for multiple\nowners of the company (shareholders). Additionally, in the event of\nliquidation, the financial liability for the shareholder is limited to the\nvalue of their shareholding. <\/p>\n\n\n\n
In a company limited by guarantee, the liability of its members is based on the amount the members undertook\/promised to pay to the company in the event that the company is unable to pay its debts or goes into liquidation. This company does not have any shares or shareholders but is owned by guarantors who agree to pay a set amount of money towards company debts. <\/p>\n\n\n\n
Companies\nlimited by guarantee are most commonly used as the structure for social\nenterprise organisations such as clubs, Non- Governmental Organisations (NGOs),\ncharities, cooperatives and residential property management companies.<\/p>\n\n\n\n
The\nmain advantage of this company structure is that it is a separate legal entity\nfrom its owners and they are protected by limited liability. This means that\nthe company can sue or be sued in its own name and that the company is\nresponsible for its own debts and not its members. <\/p>\n\n\n\n
In\nunlimited companies, there is no limit to the liability of its members. This means\nthat the members have unlimited obligation to meet any insufficiency in the\nassets of the company in the event of the company\u2019s liquidation. This form of company is mainly formed for the\npurpose of holding stocks, land or property with no likelihood of incurring\ntrading debts. <\/p>\n\n\n\n
An advantage of this form of company is that the unlimited nature of its liability allows for careful risk management. This is because the owners can suffer substantial loses if things take a wrong turn. <\/p>\n\n\n\n
Deciding on the form your company should take can sometimes be challenging. However, this doesn\u2019t have to be the case. If you\u2019 looking to start a company, consider your company\u2019s business form, purpose and the potential liability of its members. Hopefully this article will provide you with some clarity so that you can make an informed decision for your company. <\/p>\n\n\n\n
Also see: <\/p>\n\n\n\n