(a) State five characteristics of a limited liability company. (b). Explain five sources of funds to a public limited company.

Answer Details

(a) Five characteristics of a limited liability company

1. Separate legal entity: The company is a legal person distinct from its owners; it can sue and be sued in its own name.
2. Limited liability: The liability of members is limited to the amount unpaid on the shares they hold; personal property is not at risk for company debts.
3. Perpetual succession: The company continues to exist despite the death, retirement or bankruptcy of any member.
4. Ownership by shareholders: Its capital is divided into shares owned by members, and ownership can be transferred.
5. Management by a Board of Directors: The company is run by directors elected by the shareholders on their behalf.

(b) Five sources of funds to a public limited company

1. Sale of shares (equity): Raising capital by issuing ordinary and preference shares to the public.
2. Debentures: Borrowing long-term funds from the public by issuing debentures on which fixed interest is paid.
3. Bank loans and overdrafts: Obtaining medium and short-term finance from commercial banks.
4. Retained profits (ploughed-back earnings): Reinvesting part of the company's profits instead of distributing all as dividends.
5. Trade credit: Obtaining goods and materials from suppliers on credit terms.