Page 29 - Business_Studies_F5

Student's Book Form Five

Disadvantages of a company dedication to the company since they are
A company has the following disadvantages: only employees not owners.

Absence of direct control by shareholders: Double taxation: After paying out all
The owners (shareholders) do not have salaries, bonuses, overheads, and other
direct control over the running of the expenses, the company also pays taxes
FOR ONLINE READING ONLY
business. Only the expert directors have on profits. Even though the company’s
control of the business through the positions profit is taxed as a corporate tax, still the
they hold in the company. dividends paid to the stakeholders are taxed
Lack of secrecy: Due to legal requirements, as a withholding tax, thus, leading to double
a company must make numerous financial taxation.
statements available to the registrar of Formation of a company
companies, financial institutions, and the The process of forming a company
general public. Hence, commercial secrecy begins with promoters. Promoters are
is compromised. It is further lowered when the founders of a company. They take
the company issues its annual report to initiatives to create the company’s plan.
shareholders, as competitors can have Once the plan is finalized, the promoter
access to all financial information.
applies to the registrar of companies for
Complex and costly formalities: In forming permission to establish the company. This
and registering companies, there are application includes the submission of two
various requirements and procedures to be essential documents: the memorandum of
followed. Also, companies’ operations are association, and articles of association.
guided by complex regulations that must
be adhered to. Adhering to such formalities Upon submission of these documents,
may be costly and time consuming. the registrar reviews the application for
compliance and if all prescribed conditions
Possibility of misallocation of resources: are met, the registrar grants permission
There is a possibility of companies being for the formation of the company. This
operated by other people rather than their approval is formally recognised through the
owners. The management operating the issuance of the Certificate of Incorporation
company may abuse their powers and and the Certificate of Registration. With the
conduct fraudulent activities for their receipt of these documents, the company
personal gains. This leads to misallocation is officially empowered to commence its
of company’s resources. operations in accordance with the laws of

Lack of personal interest: Unlike the country signifying its legal existence
proprietorship and partnership, salaried as a corporate entity. The memorandum of
managers handle a company’s day-to- association, and articles of association are
day operations. Salaried managers then, explained as follows:
may have little personal interest and

Business Studies for Advanced Secondary Schools 20

30/06/2024 19:02:30
Business Studies FORM 5.indd 20
Business Studies FORM 5.indd 20 30/06/2024 19:02:30