types of companies and their formation

What is a company? DEFINITION OF A COMPANY, A company can be defined as a legal person or entity created by the association of a number of people accordance with the law for the purpose of pooling their capital together in order to set up business venture.

Examples of limited liability companies

are Dunlop Nigeria Plc., Nigeria Plc., C.F.A.O. Nigeria Plc., Julius  Berger Nigeria Plc and Evan Medical Plc. A company is an artificial person and is more than a mere association of individuals. It is a Legal with a personality of its own.

goods and services 2


(1)      Unlimited liability companies: In an unlimited liability company, the liability of a member is limitless and he may be liable to the full amount of the company’s debts in the event of liquidation.

The members will contribute more money, including their capital, to settle the debt of the company. Section 21(1) of the Company and Allied Matters Act defines it as one not having any limit on the liability of members.

  • Limited liability companies : In the case of limited liability companies, the liability or burden of debt in the company is limited to the amount of share capital the shareholders had agreed to contribute individually in the event of liquidation.
  • In this case, a shareholder cannot suffer the liability of the company up to his or her private property.

Types of Companies Under Limited Liability Companies

(1)       Companies limited by guarantee: Companies limited by guarantee are not formed with the aim of engaging in trading activities or making profits. They are often formed by societies and other charitable contributions from members of the public to promote and develop certain interests or professions.

The liability of its members is limited by the Memorandum of Association to such an amount as the members may have undertaken to contribute to the assets in the event of its being wound up. Guarantee companies are usually formed for the furtherance of art, science, education, religion and charity.

(2)        Companies limited by shares:

Companies limited by shares are the companies in which the liability of the shareholders is limited to the full value of the shares they have acquired. In case of liquidation, the shareholders will only be liable to the full extent of their shares contributed as capital.

They normally engage in business activities to make profit. Section 21(1) of the Company and Allied Matters Act, 1990 defined a company limited by shares as: “A Company having the liability of its members limited by memorandum to the amount, if any, unpaid on the shares held by them.”


Private limited liability company is de one which by its articles restricts the right transfer its shares, limits the number : shareholders from two to fifty, prohibits invitation to the public to subscribe to its shareholders and the name of the private company >>>> with “Limited”, e.g. Bluebird Nigeria Limited.

  •  Public limited liability company: Public liability company is defined as one which. articles allows the public to subscribe shares, must have a minimum of seven persons but no maximum number is prescribed.

  • It allows the shares to be transferred and the name of the public company must end with “Plc.’ Zenith Bank Plc., Guinness Nigeria Plc., L Nigeria Plc., and First Bank Pc. This is the type that is popularly referred to as Joint Company.



  •  Legal entity or status: Both com­panies legal entities, which means that can sue and be sued in their own names due to the fact that both are registered companies. The business name is ” from the owners’ names.

  •  Limited liability: Both companies limited liability, meaning that in the of liquidation, the shareholders can lose the value attached to the shares contributed.

  • Continuity of existence: The chances of continuity or existence of both companies are high as the death or withdrawal of a shareholder cannot affect the existence of the company.

  • Ploughing back of profits: Part of the profit can be ploughed back into the business for both companies while the remaining can be shared to the shareholders, according to the amount of shares contributed.

  • Large capital outlay: Both companies are capable of pooling large capital together to set up a business.
  • Management: Both companies appoint directors for the proper and efficient management of the business.


 Private Limited CompanyPublic Limited Company
1Shares are not easily transferable, except with the consent of their membersShares are easily transferable
2Its shares are not quoted in the stock exchangeShares are quoted in the stock exchange
3It has a minimum of two people as shareholdersIt has a minimum number of seven people as shareholders
4It has a maximum number of 50ownersIt has no maximum number of people as owners
5It does not issue debenturesIt issues debentures
6They are not allowed to use “Plc”They are allowed to use the abbreviation but “Ltd.” Or “Unltd” “Plc.” – Public Liability Company
7They do not need Certificate of Trading to commence businessThey need Certificate of Trading before they can commence business
8The public is not allowed to subscribe for its sharesThe public is allowed to subscribe for its shares
9They are small or medium in size and have limited capitalThey are large in size and have large capital
10It is owned and controlled by those who contributed the capitalIt is owned by the shareholders and controlled by the board of directors selected by theme.
11It enjoys some level of privacy as it does not publicise  its annual accountsThere is no privacy as the annual account must be published.

163. TICK
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