ASSIGNMENT # 1

TOPIC
“Basic / Distinguishing Features of Limited Liability Company”

Name: Aisha Haroon

Roll No.MAS/DBA/KU-2551/2017

Seat No: B17107006

Subject: Business law and Regulations

Submitted To: Sir Barkatullah

KARACHI UNIVERSITY BUSINESS SCHOOL

 BASIC / DISTINGUISHING CONCEPTS RELATING TO LIMITED

LIABILITY COMPANY (LLC)

Definition of Limited Liability Company (LLC):

Company means an association incorporated under this Act or any previous company law; In
other words, a company is a legal entity which is formed by different individuals to generate
profits through their commercial activities
A Limited Liability Company is a hybrid legal entity having a certain characteristics of both a
corporation and a partnership or sole proprietorship (depending on the no. of owners). The
basic feature is the limited liability which protects the private assets of its owners and
investors from risk if company fails.

Distinguishing Features Of Limited Liability Company:

There are many unique features which make a corporate different from other associations.

1) Separate Legal Entity: It can own property, open bank account, have tax identification
number, buy or sell property in its own name. It means its identity is distinct from its
owners and members.

2) Limited Liability of Members: It means owners are not responsible for obligations of
the company to its creditors. Their liability is up to the amount of value of shares they
hold in company. Their personal property will not be used to satisfy creditors of
company in case of failure. This feature attracts many people to

3) Perpetual Existence (Perpetual Succession): A company enjoys continuous existence

and its existence is not affected by the death, insolvency, insanity of its members or
directors. Its life only comes to an end when it is shut down by a legal procedure under
the company act.

4) Voluntary Association: It means a company cannot be formed by a single member. It

requires two or more person for commencement.

5) Tax Ease: There is no double taxation of LLC If the owner file their own personal tax
returns. This avoids double taxation. Corporations are eligible for many tax deductions.

6) Owners And Management Are Different: It’s not necessarily that the owners of a
company run the day to day operation of the corporation. They can hire professional
managers and staff to administrate the daily functions of the company. They can only
provide guideline and policies which the management will have to follow.
7) Transferability of Shares: The shares of a public limited company are freely
transferable. They can be purchased and sold through the stock exchange. Every
member is free to transfer his shares to anyone without the consent of other members.
Unlike partnership firms, where transferring your share to another partner requires
consent of other partners, transferability ease in company business is a attraction for
many people who want to invest their money for profit maximization.

8) Common Seal: A company is an artificial person and does not have a physical presence.
Thus, it acts through its Board of Directors for carrying out its activities and entering
into various agreements. Such contracts must be under the seal of the company. The
common seal is the official signature of the company. Any document without company
seal will not be considered authentic.

9) Can Sue and Be Sued: A company can sue any other person or be sued in its own name
as distinct from its member.

10) Formation of a Company: Establishing a corporation is not an easy task. It requires may
documentation and verification. Members have to fulfill many formalities which are not
complex in partnership and sole proprietorship. It also cost more money to register and
shut down a company business. Companies even have to do more record-keeping and
annual publishing activities. Some of the complex things are given below:

− The name of business should be different from other businesses.

− You can’t write the word Bank with company name unless your company is any
financial association.
− The company name must end with “Incorporation”, “Company” or “Corporate”
− The location of office.
− Mandatory to share annual audit reports with the registrar or regulating authority.
− Every company has documents like articles of association, memorandum of
association and prospectus for rules and regulations which are not involved in case
of partnership and sole proprietorship.