(a) Explain the following: (i) limited liability (ii) separate legal entity (iii) ceritficate of incorporation (iv) participating preference shares (v) ordi...

(a) Explanation of terms

• (i) Limited liability: This means the liability of a shareholder for the debts of the company is limited to the amount unpaid on the shares he holds. His personal property cannot be taken to settle the company's debts.
• (ii) Separate legal entity: This means a company is regarded in law as a person distinct from its owners. It can own property, enter into contracts, sue and be sued in its own name.
• (iii) Certificate of incorporation: This is the legal document issued by the Registrar of Companies which brings a company into existence and gives it the right to begin operating as a body corporate.
• (iv) Participating preference shares: These are preference shares whose holders, after receiving their fixed dividend, also share in the surplus profit along with ordinary shareholders, earning an additional dividend.
• (v) Ordinary shares: These are the equity or risk-bearing shares of a company whose holders receive a variable dividend paid only after preference shareholders, and who carry voting rights and control the company.

(b) Advantages of a public corporation

• It is financed by government, so large capital is available for big projects that private firms cannot easily undertake.
• It provides essential services to the public at affordable prices without aiming solely at profit.
• It enjoys monopoly in providing certain services, which avoids wasteful competition and duplication.
• It can be used by government to control key sectors of the economy and prevent exploitation of the public.
• It provides employment and can bear losses in the short run because it is backed by government funds.