3) Private companies | Personal liability company

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Created by
caleb coughlan

Cards (25)

  • Characteristics of a private company
    • A private company is not allowed to sell shares to the public.
    • The company name ends with letters (Pty) Ltd.
    • The company raises capital by issuing shares to its shareholders.
  • Impact of private companies
    Positives
    • Companies pay tax on a fixed tax rate.
    • It is a legal person and can sign contract in its own name.
    • There is the potential of good long-term growth.
  • Impact of private companies
    Negatives
    • A lot of capital is required to start a company.
    • Companies must prepare annual financial statements.
    • Must adhere to the tax requirements of the government.
  • Criteria that contribute to the success and/ or failure of a private company
    Taxation
    Success
    • The company pays tax at a fixed rate on its profit.
    • Can obtain tax rebates if they are involved in CSI projects.
    Failure
    • Companies are subject to double, for example, shareholders pay the secondary tax which could discourage investors from buying shares in the company.
  • Criteria that contribute to the success and/ or failure of a private company
    Management
    Success
    • Managed by at least one competent highly skilled director.
    • Shareholders can vote for/ appoint the most capable directors to manage the company.
    Failure
    • Directors' fees increase the company's expenses which reduces net profit.
    • Large management structures can result in decision-making taking time.
  • Criteria that contribute to the success and/ or failure of a private company
    Capital
    Success
    • More capital can be raised by issuing more shares to shareholders.
    • Large amounts of capital can be raised since there is no limit on the number of shareholders.
    Failure
    • It cannot grow into a very large business since it cannot invite the public to buy shares.
    • Restrictions on the transferability of shares may not attract financially strong investors.
  • Criteria that contribute to the success and/ or failure of a private company
    Division of profits
    Success
    • Profits generated can be re-invested to expand business operations.
    • Shareholders receive profits according to the number of their shares.
    Failure
    • Dividends are not always paid out, which may discourage new investors.
  • Criteria that contribute to the success and/ or failure of a private company
    Legislation
    Success
    • Limited liability allows for greater risk-taking, which may lead to the growth of the business.
    • There is no longer a limit on the number of shareholders in a private company.
    Failure
    • High formation/ establishment expenses require large start-up capital.
    • Annual audit of financial statements (if required) is costly.
  • Characteristics of a personal liability company
    • The company name must end with the letter INC.
    • The company must have at least one director on its board of directors.
    • The Memorandum of Incorporation should state that it is a personal liability company.
  • Criteria that contribute to the success and/ or failure of a personal liability company
    Taxation
    Success
    • Can obtain tax rebates if they are involved in CSI projects.
    • Can obtain government tenders and renew their licenses if they do not evade tax.
    Failure
    • Subject to double taxation, for example, when shareholders pay secondary tax it can harm a company that is already struggling financially.
  • Criteria that contribute to the success and/ or failure of a personal liability company
    Management
    Success
    • More directors may be appointed to bring more skills or expertise to the PLC.
    • Shareholders can vote for and appoint the most capable directors to manage their company.
    Failure
    • Directors' fees increase the company's expenses, which reduces net profit.
    • Directors may not have a direct interest in the company, which can hamper growth and profit maximisation.
  • Criteria that contribute to the success and/ or failure of a personal liability company
    Capital
    Success
    • Capital can be increased by getting more shareholders.
    Failure
    • It cannot grow into a very large business since it cannot invite the public to buy shares.
    • Restrictions on the transferability of shares may not attract financially strong investors.
  • Criteria that contribute to the success and/ or failure of a personal liability company
    Division of profits
    Success
    • High profits and good returns to shareholders indicate the success of a company, which increases the value of shares.
    Failure
    • Shareholders may sell their shares when dividends are low, resulting in a drop in share prices.
  • Criteria that contribute to the success and/ or failure of a personal liability company
    Legislation
    Success
    • The company and its owners (shareholders) are separate entities, which may encourage more people to join the company.
    Failure
    • Lengthy registration requirements may delay the actual operation of the business and shareholders can lose out on profitable opportunities.
  • Criteria that contribute to the success and/ or failure of a personal liability company
    Legislation
    Success
    • Directors sign performance contracts that will motivate them to perform professionally and ethically.
    • May obtain government tenders as the PLC is properly registered in compliance with the Companies Act.
    Failure
    • The drafting of directors' performance contracts may be time-consuming, expensive, and increase costs.
  • Characteristics of a public company
    • The company name ends with the letters/ abbreviation Ltd.
    • The shareholders of a company have limited liability.
    • The company has a legal personality and unlimited continuity.
  • Impact of public companies
    Positives
    • The business has its own legal identity.
    • Companies may buy and sell shares freely.
    • Shareholders can sell/ transfer their shares freely.
  • Impact of public companies
    Negatives
    • Stocks have to be traded publicly.
    • The more shareholders, the fewer dividends to each shareholder.
    • Due to legislation, decisions take longer and there may be disagreements.
  • Criteria that contribute to the success and/ or failure of a public company
    Taxation
    Success
    • Can obtain tax rebates if they are involved in CSI projects.
    • The company pays tax at a fixed rate on its profit.
    Failure
    • Subject to double taxation, for example, if shareholders have to pay the secondary tax this can harm a company that is already struggling financially.
  • Criteria that contribute to the success and/ or failure of a public company
    Management
    Success
    • The management of the company can improve since directors are accountable to shareholders.
    • Directors bring creative ideas, which encourages efficiency in the company.
    Failure
    • A large management structure can result in timeous decision making.
    • Directors fees increase the company's expenses and reduce net profit.
  • Criteria that contribute to the success and/ or failure of a public company
    Capital
    Success
    • Can raise large amount of capital as shares and debentures can be sold to the public.
    • The share capital clause in the Memorandum of Incorporation (MOI) may be changed to issue more shares.
    Failure
    • Growth is limited if sufficient capital cannot be raised.
    • Large amount of capital are required to start a public company
  • Criteria that contribute to the success and/ or failure of a public company
    Division of profits
    Success
    • Shareholders receive profits according to the type and number of their shares.
    • Profits generated can be re-invested to expand business operations.
    Failures
    • Dividends are not always paid out, which may discourage new investors.
  • Criteria that contribute to the success and/ or failure of a public company
    Legislation
    Success
    • Companies must comply with the Companies Act, No. 71 of 2008.
    • Limited liability allows for greater risk-taking, which may lead to the growth of the business.
    Failure
    • Annual audit of financial statements is costly.
    • High formation/ establishment expenses require large start-up capital.
  • Differences between the private and public company
    Private company
    • May not offer shares to the general public.
    • Shares are not freely transferable.
    • Minimum of one director
  • Differences between the private and public company
    Private company
    • Listed companies may trade its shares publicly on the Johannesburg Security Exchange (JSE).
    • Shares are freely transferable.
    • Minimum of three directors.