Company Law liability - Essay Example

He manages the business individually. By passage of time the business expands and the business activities will expand. When such business expansion takes place it will become difficult for the Sole Trader to manage with the business. At this time the sole trader needs some more people to help him and share both investment and also returns of his business. This necessitates the conversion of Sole Trade to Partnership form of business where two or more people come together and enter into a deed of partnership agreeing to carry on the business jointly by investing.

They share both the profits and loss of the partnership according their share of investment or as mutually agreed by them. The partnership firm need not be a conversion of sole trader. It can be formed directly by two or more persons join together with a common objective and mutual agreement. In the partnership firm the liability of the partners is unlimited, their personal property is also liable for discharge of firm's debts. The further expansion of partnership firm inviting more capital to cop up the expansion of the business necessitates formation of a limited company.

In a limited company funds are pooled from the public in the form of shares. The amount so pooled is known as share capital. Again this limited company need not be a conversion of partnership firm. It can be directly formed. As it is seen that. 1. Limited liability: In a Public limited company the liability of the share holders is limited to the extent of share capital of the individual share holders, where as in a partnership firm the liability of the partners is extended to their personal property.

Eg: If a shareholder holding one share whose face value is 10. His liability is limited to 10. 1. Decision Making: In a company major business policy decisions are taken in the meeting of the board of directors in a democratic way. This will give good productive and efficient decisions which leads to business prosperity. When compared to the partnership firm where the partners take the decisions either individually or jointly. 2. Borrowing powers: A limited company will have more borrowing powers than the partnership firm.

The company can borrow the funds from shareholders, financial institutions and any other sources as per the decisions taken in the board's meeting.3. Investment: The shareholders come forward easily to invest in a public limited company in the form of shares or debentures since the liability is limited. 4. Perpetual existence: Public Limited Company is having a unique feature of perpetual existence. Though the shareholders join and leave the company remains existence. The shareholder's either leaving or causing death do not effect the existence of the company.

This is called as perpetual existence.5. Transferability of shares: Another unique advantage of Public Limited Company is the free transferability of shares. This feature attracts the Public in investing in the company. With this feature the shareholders can transfer their shares freely as and when they wish. Disadvantages:Every business setup has its own disadvantages too. The Public Limited