Limited Liability Companies
Man in his primitive stage was selfish and contented. He was able to produce all he needed because his wants were limited. This same attitude of do it alone and get the benefit was extended to the business world. So the early traders were solely enterprising individual who wanted to reap the rewards of industry. Later on, traders began to pool their resources towards a common goal. That was the beginning of Partnerships. However, the attendant financial consequences of sole traders and partners during insolvency was becoming greatly felt. The result was that the lofty enterprising consciousness of businessman was threatened.
During the periods of the Industrial Revolution, a handful of men couldn't provide the necessary capital for floating big Industrial cornerns whose initial capital outlay ran into thousands dollars.
The average businessman didn't want to stake his whole fortune on one project. He therefore wanted a means whereby his liability would be limited to the amount of capital subscribed in a given cornern. This marked the beginning of the theory of Limited Liability in business.
A company is defined in law as an artificial person with rights and liabilities. In the eyes of the law a company is distinct and separate from its members. The debts of the company aren't those of its members. For example, John & Sons Company Limited. The company is a separate legal entity. It is not the same thing with John and Sons. Therefore, if John & Sons Company Limited owes Mr Brown $250, Mr Brown must take action against the company to recover his money and not against Mr John and his Sons in their private capacity.
Liability Of members:
The liability of members is limited to the amount of capital taken in the business. This amount is expressed in share. Let us assume that a company has a share capital of $10,000 and Mr Kofi a member buys shares worth $10. If the company on going into liquidation owes $1,000,000 to its creditors, Mr Kofi will be required to pay the balance of his share. If he had paid this before the winding up of the company, he will not pay any penny more. Mr Kofi has limited his to only $10.
Types Of Liabilities
1) Liability by shares: In the above example, Mr Kofi bought shares worth $10 in the company. His liability is limited to the value of the shares.
2) Liability by guarantees: Some charitable organizations whose aims are to promote certain interest, like Culture, Education, Religion, Art, etc. limited their liabilities by Guarantees. That is, they agree in advance to contribute a certain amount of money to the assets of the company, when the company is to be wound up.
Formation Of a Company
The initial secretarial work involved in the formation of a company is usually done by a solicitor, or firm of business consultants. Whoever is responsible for the secretarial work must prepare the undermentioned documents and register them with the Registrar of Companies.
1) Memorandum Of Association.
2) Articles Of Association.
1)Memorandum Of Association: This is a document settings out the relevant particulars of the company. It is in effect the legal charter of the company its field of operation.
2)Articles Of Association: This is a document which sets out the internal arrangements for the management of the company.