February 27, 2021

SB-Accounting

Accounting + Finance Blog

Meaning of Company Limited by Shares and Key Explanations

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Every company is a business but not all businesses are companies or corporations (as it is used in the United States). While other businesses are registered as business names, a company is registered as a company and has rights and privileges not available to other businesses. I have earlier explained the meaning of a company. In this article, let’s examine a company that is limited by shares.

Definition of Company Limited by Shares

This is a kind of company where the holders or owners buy shares and their liabilities are limited to the number of shares remaining unpaid.

It can as well be defined as a type of company in which the company Act allows the liabilities of members to be limited to the value of unpaid shares.

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Key Explanations

A type of company. Generally, there are two types of company. Limited and public companies. However, companies can also be limited by shares, limited by guarantee and unlimited companies. Therefore, to differentiate the type, the term kind of companies is used when referring to the aforementioned.

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The company Act. The company Act in Nigeria, that is, the Company and Allied Matter Act 2020 as amended. This Act mentioned that a company can be limited by shares. Every country has its Act and in most cases, there are similarities in all of them. For example, India’s company Act also agrees with that of Nigeria’s to a large extent.

Owners by shares. To be an owner of a company, you must buy the shares of that company. Shares simply mean part ownership of a business. It is the certificate given to individuals. The certificate serves as evidence that the holder is one of the owners of the business. Such a certificate is recognized by the laws of the country through the Company Act.

Liabilities are limited. The liabilities of the companies are limited. Unlike other businesses, the owners of a company have limited liabilities. This is one great advantage to register a business as a company instead of a business name.

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Limited liabilities means that the owners will not lose their personal belongings if the company cannot meet up its current obligations (liabilities) as they are available for repayments.

Unpaid shares. Shares are normally issued at subscription. When the owners subscribe for such shares, he or she may pay for the shares immediately or may buy some part of the shares on credit terms. When an individual subscribed to a company’s shares and it was on credit terms, such shares are unpaid.

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Moreover, a shareholder may fails to make payments for the shares as at when the company closes down or liquidates. He or she must pay the unpaid shares from his or her personal properties.

What you should know

A company limited by shares can be a private company also called private equity companies or public or listed companies. A private limited company does not sell its shares at a A exchange market. However, a private placement is used to sell its shares. In many cases, this type of company goes public through an Initial Public Offering (IPO).

On the other hand, a public company can sell its shares to a stock exchange market. It is called a listed company because it has its shares quoted in an organized stock exchange market. Example, the Nigerian Stock Exchange.

More to it, in Nigeria, a private company can be owned by one person and a maximum of fifty persons. While a public company can be owned by a minimum of 7 persons with no maximum number of individuals that can own it.

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Conclusion

A company is owned by having shares in it. Such owners bore the liabilities of the company. However, such liabilities are limited to the value of shares each shareholder-owned in the company. And the value of shares remaining unpaid by any shareholder upon liquidation.

2Shares
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