(a) Explain the following:
(i) limited liability (ii) separate legal entity (iii) ceritficate of incorporation (iv) participating preference shares (v) ordinary shares.
(b) State five advantages of public corporation.
Explanation
(a)(i) Limited liability: Means that members' loss in the business is limited to the amount of capital they had contributed.
(ii) Separate legal entity: Means that the business has a legal existence different from the owners./ Ownership of the business is separate from management./The company can sue and be sued.
(iii) Certificate of Incorporation: This is the document issued by the Registrar of companies certifying the legal existence of a company after certain legal requirements for registration have been met. It gives the company a legal existence.
(iv) Participating preference shares: Holders of these shares have further claim on profits, after the ordinary shareholders have received a specific amount of dividends.
(v) Ordinary shares: These are known as equities. / The holders have a last claim on the assets or profits of the company. / They carry the greatest risk in business.
(b) Advantages of Public Corporations:
(i) They provide essential services to the populace e.g. water and light. / Improve the standard of living.
(ii) They provide employment opportunities.
(iii) Government runs them instead of leaving them in the hands of private monopolies to make their services affordable.
(iv) They enable the government and its agencies to control strategic industries in an economy.
(v) They generates revenue for the government.
(vi) They prevents wasteful duplication of infrastructural facilities.
(viii) They operate on large scale as a result enjoy economies of scale.