(a) State five characteristics of a limited liability company.
(b). Explain five sources of funds to a public limited company.
Explanation
(a) Characteristics of a limited liability company are:
(i) The liability of the owners is limited to their investment in the company.
(ii) The company is a legal entity; as a result, it can sue and be sued.
(iii) The affairs of the company is managed by Board of Directors as ownership is separated from management.
(iv) In case of liquidation, the company's assets will be used to settle debts.
(v) The company's authorized capital is divided into shares.
(vi) The affairs of the company are governed by memorandum and article of association, formation or incorporation.
(vii) Dividend is based on the number of shares owned/Return on investment is called dividend.
(viii) The shares are quoted on the stock exchange in case of Public Limited Company while the shares are not quoted in case of Private Limited Company.
(ix) The company must have a registered office.
(x) Death of a shareholder will not lead to the end of the company.
(xi) The owners are called shareholders.
(b) Sources of funds to a public limited company are:
(i) Debentures: This is a loan which had security backing it up. Debenture holders are creditors.
(ii) Retained Earnings: Companies may decide not to distribute all their profits as dividend so that they can plough back the money for growth.
(iii) Leasing: This is a method of buying equipment through a company/bank. The bank will buy the equipment in its own name and lend the equipment out for lease or rent.
(iv) Trade Credit: This is a process of buying items for sale on credit from suppliers.
(v) Borrowing from Banks could be through loans or overdraft.
(vi) Factoring of debt: This is the process of companies selling off their debts for cash now.
(vii) Raising of funds from the Capital Market/Selling of shares.
(viii) Selling of company's asset: A company can sell any of its assets to raise funds.