(a) Define the term limited liability
(b) Describe four differences between a public joint-stock company and a private joint-stock company
(c) Outline three sources of finance available to sole proprietorship
Explanation
(a) Limited liability is a business ownership structure that protects shareholders' personal assets from losses and debts. The liability is limited to the amount invested in the company. Owners and partners are not accountable for the firm's losses and debts.
(b) - For a private company, the minimum membership is 2 while the maximum is 50 and for a public, the minimum is 7 while the maximum has no limits.
- In a private joint stock, the number of directors is at least 2 while for a public, the number of directors is at least 3.
- There is no need for directors to file anything i.e no restriction on the appointment of directors in a private company while in a public joint company, directors must file a consent to act as directors or sign an MOA or enter for contract for qualification shares.
- In a private joint stock company, the transfer of shares is restricted while in a public joint stock company, there is no restriction of shares.
(c) -Personal capital: The sole proprietorship can invest his own savings into his business for expansion. This prevents him from the burden of interest payment and allows him to retain full control over the business.
- Retained profit: A profitable business generated a positive net income every year. Instead of drawing out large sums of money, a sole trader may opt to retain the earnings for business expansion
- Sale of assets: When a sole trader is short of personal capital and retained earnings and there's a need to further investment in the business, he may decide to sell some of his assets.