7 TYPES OF COMMERCIAL ENTERPRISES:

LIMITED COMPANIES

LEARNING OBJECTIVES
▪ private limited enterprises
▪ public limited enterprises
▪ business formation, documents required to set up, raising capital, ownership
and control, distribution of profit, liability of owners for losses and the
suitability of each type in given situations

LIMITED COMPANIES
Limited companies are incorporated that means they have a separate legal identity from their
owner. They own resources, form contacts, employ people, sue and be sued.

FEATURES OF LIMITED COMPANIES

1) Official procedure to follow to form.
2) Two official documents are required.
3) Capital is raised by issuing shares.
4) Owned by shareholders but run by board of directors. The board of directors headed by a
chairperson.
5) Profit is distributes between the shareholders.
6) Limited liability.

FORMING A LIMITED COMPANY

Must have 2 minimum people, but no upper limit.
Documents are to be sent to 'registrar of companies'.
The most important are memorandum of association and the articles of association. These
make up the company's constitution.
If these are accepted, the company will get a certificate of incorporation (allows it to trade).

- Memorandum of association
Gives details about the company. Should include:
▪ name of the country
▪ name and address of the company's registered office
▪ objectives of the company and the nature of its activities
▪ amount of capital to be raised and the number of shares to be issued

- Articles of association
Deals with the internal running of the company. Includes:
▪ rights of shareholders depending on the type of share they hold
▪ procedures for appointing directors

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 ▪ procedures for appointing directors
▪ length of time directors should serve before re-election
▪ timing and frequency of company meetings
▪ arrangements for auditing company accounts

PRIVATE LIMITED COMPANIES

These are companies normally run by family members, friends or relatives. Shares can only be
transferred privately and shares cannot be traded in the stock market.

ADVANTAGES OF PRIVATE LIMITED COMPANIES

1) limited liability
2) more capital is raised
3) control can be kept under the original owners
4) business continues
5) company has a status

DISADVANTAGES OF PRIVATE LIMITED COMPANIES

1) financial information has to be public
2) costs more and takes time to set up
3) profit is shared
4) takes time to transfer shares
5) cannot raise higher amount of capital

PUBLIC LIMITED COMPANIES

These are companies which issue shares on the stock market.
People who buy shares include institutional investors, insurance companies, and companies.
When 'going public' a company has to prepare a document called a prospectus. This document
shows that the company wants the public to buy its shares.
Going public can be expensive:
▪ lawyers are needed to ensure that the prospectus is legally correct
▪ the prospectus has to be printed and distributed
▪ bank is paid to process share applications
▪ a fee is paid to an underwriter, these are institutions that agree to buy any unsold shares.
▪ there are advertising and administrative expenses
▪ flotation

ADVANTAGES OF PUBLIC LIMITED COMPANIES

1) large amounts of capital
2) limited liability
3) exploits economies of scale (they get more benefits)
4) able to dominate the market
5) shares are very easily brought and sold
6) have a very high profile in media

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DISADVANTAGES OF PUBLIC LIMITED COMPANIES
1) setting up costs are high
2) outsiders can take control by buying shares
3) financial information has to be made public
4) managers may take control rather than owners

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