TYPES OF COMPANIES

1. INTRODUCTION
2. OBJECTIVES
3. MAIN CONTENT
4. CONCLUSION
5. SUMMARY
6. TUTOR MARKED ASSIGNMENT
7. REFERENCES/FURTHER READING

INTRODUCTION

In Unit 1, we learnt about two basic business organizations, the sole trader and partnership. In this unit we shall be studying An introduction to company as a business organization. The types of companies we have under the law, and importance of the classification of companies. We have different types of companies each one formed for a particular reason or purpose, for example, there are companies formed under on enable  statute basically as an agent of Government for public purposes. While others may be formed by individuals but for nonprofit motives, though majority of companies are incorporated for purposes of profit making. This profit making companies are also sub-divided into public or private companies.

OBJECTIVES

At the end of this unit, the student must be able to discuss. The different types of companies the purpose for which each type of company is registered to fulfill.

MAIN CONTENT

Types of Companies and Functions

Statutory Companies

These are companies brought about by statute e.g. Power Holdings Company of Nigeria (PHCN). Their powers, purpose, management and functions are as stated in the enabling Act. Profit is not the major aim of setting up these companies but basically for government to provide an important social amenity. These companies major or only shareholder is the Government, the Directors and top managers are appointed by Government and they do not have share capital.

REGISTERED COMPANIES

There are three types of companies under this category,

• company limited by shares,
• company limited by guarantee
• unlimited liability company
• Company Limited by Shares: - these are companies incorporated under the Companies Acts. A company limited by shares is a company where the liability of the shareholders for the debts of the company is limited to the amount unpaid on their shares (see Sec A on 21 CAMA 2004).
• Company Limited by Guarantee :- In this case, the motivation is not to make profits, this is a company having the liability of the members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of the company being wound up (see Section 21, CAMA 2004) company limited by guarantee is appropriate for non-profit organization for the promotion of arts, culture, commerce, science, religion, education sports, research, charity or other similar objects and the income of the company are to be applied solely towards the promotion of its objects, and no portion thereof is to be paid or transferred directly or indirectly to the members of the company except as permitted under the Act; the company limited by guarantee shall not be registered with share capital (section 26) the company name must end with limited by guarantee (Ltd/Gty).
• Unlimited Company:- An unlimited company is a company where the liability of the members is unlimited. It follows that the members shall be personally responsible for the debts of the company. (See section 21(2).)

A company limited by shares may be further divided into two, the private company limited by shares, and public company limited by shares.

Private Company: A private company is (1) a company that restricts the right to transfer its shares and (2) limits the number of its members to 50, not including the persons who are in the employment of the company and persons who having been formerly in the employment of the company who were while in that employment and having continued after the determination of that employment to be members of the company and (3) prohibits any invitation to the public to subscribe for any shares or debentures of the company. Minimum share capital of private company is N10,000.00

Public Company: The Act namely declares that any company other than a private company shall be a public company and its memorandum shall state that it is a public company. We should note that public companies have the aim of securing investment from the general public and so they are free to advertise the offer of their shares to the public. The company also issues prospectus which gives a detailed and accurate report of all the activities of the company including the names of its directives and members, its share capital, the assets of the company and other important, information. Because the general public are involved and need to be protected, the initial capital requirements for a public company, are more onerous than a private one. The minimum capital requirement of a public company is N500,000.00 (section 27(2), CAMA 2004). The application for registration for a public company must state that it is a public company and that the liability of its members is limited, the company therefore must end its name with “PLC” (Public Limited Company) section 29(2) CAMA 2004). This will notify the public that the member’s liability is limited and that it is authorized to secure investment from the general public.

In order to facilitate the sale of its shares publicly, the public company may apply to be listed on the Stock Exchange. The Nigerian Stock Exchange may list any public company that applies to be listed on the exchange, and upon being listed, the shares of the public company may be sold on the floor of the market. This is not available to a private company. However, not all public companies are listed on the stock exchange.

We may also note the restriction as to the maximum membership of a private company is 50 members, whereas a public company is not so restricted, and may have as many as a million members or more.

A private company may be converted to a public company by complying with the provisions of the Act. The private company proposing to convert to a public company must,

• Pass a special resolution that it should be so re-registered
• Apply to the Corporate Affairs Commission (C.A.C) for re-registration with the following documents
  • a printed copy of memorandum and articles of association as altered in pursuance of the resolution
  • a copy of written statement by the directors and secretary certified on oath that the paid up capital of the company is not less than twenty-five percent of the authorized share capital as at that date
  • a copy of the balance sheet of the company
• statutory declaration by the director and secretary that;
• the special resolution has been passed,
• that the company’s net assets are not less than the aggregation of the paid-up capital and undistributable reserves and ,

• a copy of the prospectus or statement in lieu of the prospectus (see section 50, CAMA 2004).

CONCLUSION

As we have pointed out, there are different types of companies, all incorporated for particular purposes and reasons. The most popular however from the point of view of business are those that are limited by shares and having share capital. They are classified as being private and public companies. Private companies are restricted in terms of membership and ability to raise money from the public, and suitable for small businesses, while the public companies are big businesses with access to the general public for raising capital and also may be listed on the Stock Exchange for the purpose. The private company may be re- registered as a public company by simply complying with the provisions of section 50 of CAMA 2004.

SUMMARY

From the stand point of business and investment opportunity. The company provides an organizational structure that is designed to effectively meet this need. The shares enable the company to raise money from a very large number of people. The members have limited liability and are therefore not constrained with fears of any personal liability. Thus it minimizes risk. The company is also not hampered by the death of a member as it will not bring the business to an end like the partnership. Though the members are the ownership of the capital of the company, they appoint directors to manage the affairs of the company and therefore management is separated from ownership, the directors must however give account of their management periodically during meetings called the Annual General Meeting (AGM).

TUTOR MARKED ASSIGNMENT

Compare and contrast the private and public companies