Company limited by shares

3 Key Takeaways

• Shareholders in a company limited by shares are not personally liable for the company’s debts.
• The company is a separate legal entity from its owners.
• This structure is popular due to its flexibility and limited liability protection.

What is a Company Limited by Shares?

A company limited by shares, also known as a joint-stock company, is a legal entity where the ownership is divided into shares. These shares represent a portion of ownership in the company, and shareholders are entitled to a share of the company’s profits in the form of dividends.

The key feature of a company limited by shares is that the liability of shareholders is limited to the amount they have invested in the company. This means that if the company incurs debts or faces financial difficulties, the personal assets of shareholders are protected.

Importance of Companies Limited by Shares

• Limited Liability: The limited liability feature protects shareholders’ personal assets from the company’s liabilities, encouraging investment and entrepreneurship.
• Separate Legal Entity: The company is a distinct legal person from its owners, allowing it to own assets, enter contracts, and sue or be sued in its own name.
• Perpetual Succession: The company continues to exist even if its shareholders change, providing stability and continuity.
• Transferability of Shares: Shares in a company limited by shares can be easily transferred, facilitating investment and ownership changes.

How a Company Limited by Shares Works

The company is managed by a board of directors elected by the shareholders. The directors are responsible for making strategic decisions and overseeing the day-to-day operations of the company. Shareholders have the right to vote on certain matters, such as the appointment of directors or major changes to the company’s structure.

Examples of Companies Limited by Shares

Most large corporations and many small and medium-sized enterprises (SMEs) are structured as companies limited by shares. Examples include:

• Apple Inc.
• Microsoft Corporation
• Amazon.com, Inc.
• Local retail stores
• Small consulting firms

Real-World Applications

The company limited by shares structure is the most common legal form for businesses worldwide due to its numerous advantages. It provides a flexible framework for managing ownership and control, while also offering limited liability protection to shareholders. This structure has been instrumental in facilitating economic growth and innovation by encouraging entrepreneurship and investment.