Types of Companies/Company Law/Commercial Transaction/

1.0 Limited Companies ( Section 5)

• a company is a limited company if it is a company limited by shares or by guarantee

1.1 Companies limited by shares (Section 6)

• liability of its members is limited by the company's articles to any amount unpaid on the shares held by the members

• the liability of the members of an existing company is taken to be limited by the company's articles to any amount unpaid on the shares held by the members if a condition of the memorandum of association of the company stating that the liability of the members is limited is regarded as a provision of the articles by virtue of section 70 (Conversion of a private company to a public company)

1.2 Companies limited by guarantee (Section 7)

• a company is a company limited by guarantee if—

• it does not have a share capital;

• the liability of its members is limited by the company's articles to the amount that the members undertake, by those articles, to contribute to the assets of the company in the event of its liquidation; and

• its certificate of incorporate states that it is a company limited by guarantee


• A company limited by guarantee can have a share capital if it was formed and registered before the commencement of this section.

2.0 Unlimited Companies (Section 8)

• a company is an unlimited company if—

• (a)there is no limit on the liability of its members; and

• (b)its certificate of incorporation states that the liability of its members is unlimited

Additional information about unlimited companies

- No limit on the liability of its members (Liability of members not restricted to share capital)

- Must have at least two members (otherwise, there is no distinction from sole proprietorship)

- Once registered the company must have ‘unlimited’ in all its communications

Unlimited company is began when there is no start-up capital and there is need to assure the investors

A wholly owned subsidiary of a strong subsidiary can afford not to have share capital because if liability arises, there is guarantee from the holding company that they will assume liability

BUT it’s not a common form of company therefore not easy to attract funding for unlimited companies

Erodes the core benefit of companies as entities which is to restrict the liability of the members from that of the company

3.0 Private Companies (Section 9)

• a company is a private company if—

• (a)its articles—

• (i)restrict a member's right to transfer shares;

• (ii)limit the number of members to fifty; and

• (iii)prohibit invitations to the public to subscribe for shares or debentures of the company;

• (b)it is not a company limited by guarantee; and

• (c) its certificate of incorporation states that it is a private company

• two or more persons who hold shares in a company jointly are taken to be a single member.


Additional characteristics

- It can have a minimum of one person

- Can have one director

- Doesn’t have to have a company secretary

- Must have share capital

- Must in all stationery/correspondence the words ltd.

Core rationale- to maintain control of shareholding and active decision-making

BUT a private limited liability company has a limitation of attracting capital from a wide source of ranges


4.0 Public Companies ( Section 10)

• a company is a public company if—

• (a)its articles allow its members the right to transfer their shares in the company;

• (b)its articles do not prohibit invitations to the public to subscribe for shares or debentures of the company; and

• (c)its certificate of incorporation states that it is a public company

Additional information

- Must have a company secretary

- Must have at least two members

- Must have at least two directors

- Must have share capital

- In all its stationery/correspondence must have the word plc.

Can float shares to the public thus being able to raise more capital. The shares are easily transferable and have fewer restrictions

A public company has enhanced compliance and supervisory regime- must make financial returns and reports public, must have CS

A public company has a market for its shares whereas a private co does not.

BUT it is expensive and complex to run; decision making is curbed and is costly, time-consuming and complex (must send notices 21 days before making decisions)


You can’t restrict who comes in thus leading to less control. This can be mitigated by limiting the number of shares that can be transferred.