I appreciate all the feedback I received from my previous articles. Thus, in response to several inquiries; one which is what are the advantages of a limited liability company? These enquiries have now led me to write on the advantages of a limited liability company.
I reiterate again that a limited liability company is one that limits the liability of its shareholders. In a broader term, it means that shareholders are only liable to the extent of their shareholding in the company. It also means that the personal wealth of entrepreneurs or shareholders are untouchable.
In our previous article on “how to register a Company”, I mentioned that we have 3 (three) types of companies i.e. public, private and unlimited companies. All these three have their advantages but I will outline general advantages here. You must know that the 3 (three) types of companies have one thing in common, “legal personality”. That is, they are composed of life and blood distinct of the shareholders.
I believe the advantages are inexhaustive but I will outline the important ones here.
Separate Legal Personality is one of the advantages of a limited liability company
You need to know that a company is different, distinct and separate from the promoters, shareholders, directors, the management and employees. The company is like a “human person” with legal personality. It exists of itself.
In other words, the death of a director or shareholders does not terminate the life of the company which in turn ensures job security for employees. Instances abound especially among the multinational brands where the original founder had died several years ago and the brands are still doing very well.
I get asked this question every day by promoters at the pre-incorporation stage. Do I have to pay all the 1,000,000 or 20,000,000 share capital immediately? Of course not. Instead, your liability is limited to your individual subscription in the company’s share capital.
For instance, if you subscribe to 1,000,000 shares of 20,000,000 shares, your liability will be limited to your subscription of 1,000,000 shares. No one will touch your personal properties. However, this is not without exceptions.
Ability to sue and be sued
A company can solely maintain legal actions by or against it where there is any cause for it. This reiterates my earlier point that the shareholders and directors are spared vexatious and speculative court litigations. Also, the company can fight i.e. sue for its rights without joining the directors or shareholders in its legal actions.
Instead of levying personal taxes on directors or shareholders as the case with sole proprietors, tax authorities levy taxes on the company which is usually on company profit. Which means directors can take little salaries but pay dividends to shareholders and employees. This, in turn, stimulates employees to work harder with a mindset of earning bumper incentives.
No ownership restrictions
There are no ownership restrictions for limited liability companies. Even though private companies have a restricted number of 50 (fifty) owners, they can change to public companies that have an unlimited number of owners.
Ability to raise issues shares to the Public
Companies can issue shares to the public through the securities market in order to raise funds for expansion purposes.
The shareholders share liabilities according to the extent of their shareholding in the company. Ans the higher number of shareholders, the lower the liabilities borne by shareholders.
Miscellaneous Advantages of limited liability company
• You can only do certain businesses with a limited liability company i.e. insurance, banking, bureau de change, etc.
• The company can own its properties independent of the shareholders and directors
• The company can form ownership of another company
• It is good for holding appreciable assets like intellectual property, real estate, stocks, shares, etc.
Written by: Oluwadamilare AJAO.
He is a Corporate Law Expert and partner at Brief and Case LP. Contact him for further inquiries at email@example.com