Limited Liability Company

What is a Limited Liability Company?

It is an association of individuals who agree to unanimously put their resources together, for the purpose of having a business; it is separate from the owners. A Limited Liability Company is a legal entity, established through state approval, solely to make a profit.

There are two types of Limited Liability Companies namely: Private Limited Liability and Public Limited Liability Companies.

Private Limited Liability Company:

This company is owned by a private person or individuals. It has a minimum of two (2) shareholders and a maximum of fifty (50)

Their financial obligation is not more than the amount they contribute to the business. Their shares cannot be sold at the stock exchange market (SEM), nor are the shares transferrable. The abbreviation “Ltd” is added to the company’s name. It is usually formed by friends and family members.

Advantages of a Private Limited Liability Company:

1. It enjoys privacy.

2. It is easy to control.

3. The management structure is simple.

4. The annual report may not be published.

Public Limited Liability Company:

This is a company, set up by shareholders, who contribute money to establish a business. It is owned by a minimum of seven (7) and has no maximum. The objective of establishing the business is to make a profit.  The abbreviation “Plc” is added to its name, for example. First Bank of Nigeria Plc, John Holt Plc, Unilever Plc, etc.

The law allows the company to sell shares to the public, and the shares can be transferred. It can also trade its share in the Stock Exchange Market (SEM)

Public Limited Company is managed by a board of directors.

Advantages of Public Limited Liability Company:

• It can sell shares to the public.

• It is capable of expansion.

• It can borrow money from the stock exchange market.

• Its shares can be listed or quoted in the stock exchange market.

• It is a legal entity.

Disadvantages of Public Limited Liability Company:

• It is expensive to run.

• It has no privacy.

• It is difficult to manage.    

• Decision-making is very slow.

• It is very legalistic or formalistic.

• The employees and customers are very far from the management.

Features of a Limited Liability Company:

• Members of the management board (Board of Directors) are elected.

• A member can increase his or her influence by buying more shares.

• The income and expenditures of the company are public records and are usually published in Newspapers. Members and the general public will know how well the company is doing.