Types of Companies
There are essentially two types of companies: limited companies Directors, however, do not run the company on a day to day basis. They hire a team of professionals to carry out the day to day management of the company. Some directors may be a part of such a management team. Hence, the team running a company should be seen as having two distinct layers: the first tier is Board of Directors and unlimited companies.
Unlimited companies
Unlimited Companies are those whose shareholders have unlimited liability towards the liabilities of the company. These companies may or may not have a share capital. In effect, these companies resemble partnerships. However, this form of ownership is not very common and in fact it would be difficult to find an unlimited company in Pakistan.
A limited liability company is the one whose shareholders’ liability towards company’s debts is restricted to a stated sum. Limited Liability companies are also of two types: Companies Limited by Guarantee and Companies Limited by Shares.
A Company Limited by Guarantee generally has no share capital and its members agree to guarantee to pay a stated sum towards settlement of the company’s liabilities in the event of its failure to fully repay all of its creditors in the event of its liquidation. Generally professional associations (e.g. Institute of Chartered Accountants in Pakistan), or non-profit organizations likes NGOs, are formed as companies limited by guarantee.
A Company Limited by Shares generally has a share capital and the liability of its members (i.e. the shareholders) is limited to the par value of the shares held by them. If they have already fully paid for their shares to the company, they have no further liability towards the debts of the company whether or not the company is able to meet its obligations in the event of its liquidation. Understandably, companies limited by shares are the most common type of companies.
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