Page 28 - Business_Studies_F5

Student's Book Form Five

Features of a company capital they have agreed to contribute. As
The following are the features of a the amount is borne by many, the risk is
company: spread out and thus, reducing its impact
on an individual shareholder.
Separate legal entity: There is a clear line
of separation between the business and its Advantages of a company
FOR ONLINE READING ONLY
owners. The business assets are separate Operating a business as a company has the
from those of the owners or shareholders. following advantages:

Perpetual succession: Companies are Encourages business expansion: It is easy
established with a belief of indefinite for a company to grow since a company’s
operation. This means companies are capital can be raised from different sources.
designed in such a way that the death of Therefore, expanding the business becomes
any member will not significantly affect easier. Companies can increase their capital
the continuity or going concern of the by issuing more shares or debentures. They
company. can also use their reserves to fund their

Control: Companies are always managed expansion.
by the board of directors who act on behalf Transfer of ownership: For public
of the owners. They are responsible for companies shareholders are free to sell
appointing and guiding the top management their shares at any moment in the stock
and overseing the daily functioning of the market. This makes the company’s ability
company. to continue with operation regardless of
Liability: Contrary to the unlimited the transition in ownership (change in
companies, limited companies have limited ownership).
liability. The liabilities of owners of the Limited liability: Unless otherwise stated,
business are limited to the amount of the liability of shareholders is limited to
capital they have agreed to contribute or the amount of capital they have agreed
the amount of capital guaranteed by owners to contribute or the guarantee that a
in the event of a crisis. shareholder provides. If the company fails
Common seal: Since there are many to meet its obligations to pay creditors, the
owners of a company, a common seal is personal property of shareholders will not
prepared to identify all of them as one. The be taken to pay the company’s liabilities.
common seal is required to appear in all Presence of professional management: The
dealings of the company to guarantee the management of a company is in the hands of
involvement of the company. In the absence the board of directors who are elected by the
of such a seal, company participation is not shareholders and have extensive expertise.
guaranteed and hence exempted. Salaried professional managers are hired
Risk sharing: This is when the risk of the to oversee the day-to-day operations of a
company is borne by every owner of the company hence, the company is provided
company and is limited to the amount of with expert management.

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