LIMITED LIABILITY COMPANY Lesson Note
Learning Objectives
This SS2 COMMERCE lesson note covers LIMITED LIABILITY COMPANY for First Term, Week 3.
Lesson Note
Learning Objectives
By the end of the lesson, students should be able to:
1. Define a company.
2. Explain the meaning of a limited liability company.
3. Identify the types of limited liability companies
4. Explain the formation/format of a limited liability company
5. State the characteristics of a limited liability company.
6. Explain Memorandum of Association and Articles of Association.
7. Differentiate between Memorandum of Association and Articles of Association.
A. MEANING OF A COMPANY
A company is an organization formed by one or more people to carry out business activities, usually by providing goods or services to customers.
B. MEANING OF LIMITED LIABILITY COMPANY
A limited liability company is defined as a legal person or entity created by the association of a number of people in accordance with the law for the purpose of a defined object e.g nestle food plc, Cadbury plc guiness plc
For example, if a shareholder owns shares worth ₦100,000 and has already paid the required amount, the shareholder's personal property is generally not used to settle the company's debts merely because the company is indebted.
C. TYPES OF LIMITED LIABILITY COMPANY
There are two major types:
1. Private Limited Company
A private limited company is a company whose shares are privately owned and are not offered to the general public for subscription.
Features include:
1 It normally ends with “Limited” or “Ltd.”
2 Transfer of shares is usually restricted.
3 limit the numbers of its members from two to fifty
4 prohibit any invitation to the public to subscribe to its own shares
2. Public Limited Company
A public limited company is a company whose shares may be offered to the general public in accordance with the law and regulatory requirements.
Features include:
1 Its name normally ends with “Plc.”
2 Its shares can be made available to members of the public.
3 must have a minimum t seven persons but no maximum number is prescribed
4 allows the shares to be transferred
D. FORMATION/FORMAT OF A LIMITED LIABILITY COMPANY
The formation of a limited liability company in Nigeria involves registration with the Corporate Affairs Commission (CAC).
The major steps and requirements include:
step 1: the promoters devises a scheme of capitalisation bearing in mind the cost of formation ,assets to be bought and working capital
Step 2: the promoters is required to secure the services of a solicitor to prepare certain documents to be filed with the register of companies the documents are
Memorandum of association
Article of association
Statement of nominal capital
Step 3 the documents are stamped and lodged with the register of company
Step 4. Certificate of incorporation: When the registration is successfully completed, the company receives its certificate of incorporation.
E. CHARACTERISTICS OF A LIMITED LIABILITY COMPANY
1. Separate Legal Entity
The company is legally separate from its members. The company's debts are generally its own debts.
2. Limited Liability
The liability of members is limited according to the nature of the company and the applicable law.
3. Perpetual Succession
The company can continue to exist even when some of its members die, retire or leave the company.
4. Ownership by Shares
In a company limited by shares, ownership is represented by shares held by shareholders.
5. Transferability of Shares
Shares may be transferred according to the law and the company's Articles of Association. Private companies normally place restrictions on the transfer of shares.
6 Ability to Sue and Be Sued
The company can take legal action and can also have legal action taken against it in its own names
6. Meaning of Memorandum of Association
The Memorandum of Association is a fundamental documents forming the constitution of a company and defining it's objectives and powers with regards to its dealing with its outside world
F. IMPORTANCE OF MEMORANDUMS OF ASSOCIATION
1 It provides the basic framework of the company.
2 It states important constitutional information.
3 It helps define the company's relationship with the outside world.
4 It forms part of the documents required for incorporation.
G. MEANING OF ARTICLES of ASSOCIATION
The Articles of Association are the rules and regulations governing the internal management and administration of a company.
They provide rules concerning matters such as meetings, appointment and powers of directors, voting, shares and other internal affairs.
Matters Covered by the Articles includes:
1. Appointment and powers of directors.
2. Conduct of company meetings.
3. Transfer of shares.
4. Payment of dividends.
5. Duties of company officers.
6. Procedures for making decisions.
H. DIFFERENCES BETWEEN Memorandum OF ASSOCIATION AND ARTICLES OF ASSOCIATION
1. A memorandum contains the name of the company which must end with with the word limited but the article of association contains the method of holding meetings
2. A memorandum contains the registered office of the company while an article defined powers and duties of director s
3. A memorandum contains the objective of the company while an article defines how directors are to be elected
Evaluation
OBJECTIVE QUESTIONS
1. What is a limited liability company?
A. A business owned by one person
B. A company where members' liability is limited to the amount they have agreed to contribute
C. A business owned only by the government
D. A partnership owned by two people
2. Which of the following is a type of limited liability company?
A. Sole proprietorship
B. Public limited company
C. Partnership
D. Cooperative society
3. A private limited company usually restricts the transfer of its ______.
A. Assets
B. Shares
C. Buildings
D. Profits
4. Which of the following is a characteristic of a limited liability company?
A. It has no legal identity
B. Members have unlimited liability
C. It has a separate legal personality
D. It cannot own property
5. The first major step in forming a limited liability company is to ______.
A. Employ workers
B. Register the company with the appropriate authority
C. Declare dividends
D. Sell all its shares
6. In Nigeria, the body responsible for registering companies is the ______.
A. Central Bank of Nigeria
B. Corporate Affairs Commission
C. Securities and Exchange Commission
D. Federal Inland Revenue Service
7. The Memorandum of Association mainly states the company's ______.
A. Internal rules and regulations
B. Objects, name and registered office
C. Employees' salaries
D. Daily business transactions
8. The Articles of Association contain rules concerning the ______ of the company.
A. Internal management
B. National budget
C. Importation of goods
D. Payment of taxes only
9. Which of the following distinguishes a public limited company from a private limited company?
A. A public company can generally invite the public to subscribe for its shares
B. A public company has no shareholders
C. A private company is owned by the government
D. A private company cannot make profits
10. The liability of shareholders in a limited liability company is generally limited to ______.
A. All the company's debts
B. Their personal property
C. The amount unpaid on their shares or their agreed
guarantee
D. The company's total assets
Theory Questions
1a. What is a company?
1b. Define a limited liability company.
1c. State the two types of limited liability company.
2a. What is Memorandum of Association?
2b. What is Articles of Association?
2c. State 3 differences between Memorandum of Association and Articles of Association.
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