Page 2 - Lesson Notes 7

1. Limited Liability - Limited liability of shareholder reduces the degree of risk borne by
him. It means the liability of the member in accompany form of organization limited to
the nominal value of the shares they have acquired.

2. Transfer of Interest – Easy transferability of shares increases the attractiveness of
shares for investment.

3. Perpetual Existence - Existence of a company is not affected by the death, insanity,
Insolvency of member or change of membership. Company can be liquidated only as per
the provisions of companies Act.

4. Scope for expansion – A company can collect huge amount of capital from unlimited no.
of members who are ready to invest because of limited liability, easy transferability and
chances of high return.

5. Professional management – A company can afford toemploy highly qualified experts in
different areas of business management

LIMITATIONS

1. Legal formalities - The procedure of formation of Co. is very long, time consuming,

expensive and requires lot of legal formalities to be fulfilled.

2. Lack of secrecy - It is very difficult to maintain secrecy in case of public company, as
company is required to publish and file its annual accounts and reports.

3. Lack of Motivation – Divorce between ownership andcontrol and absence of a direct
link between efforts and reward lead to lack of personal interest and incentive.

4. Delay in decision making –Bureaucracy doesnot permitquick decisions and prompt
actions. There is little scope for personal initiative.

5. Oligarchic management- Co. is said to be democratically managed but actually managed
by few people i.e. board of directors. Sometimes they take decisions keeping in mind
their personal interests and benefit, ignoring the interests of shareholders and Co.

TYPES OF COMPANIES: On the basis of pattern of shareholding and other
requirements under the Companies Act, 2013, there are three categories of companies:
one Person Company, private company and public company.

One –Person Company: One person company (OPC) is a company that is formed and
operated by a single person with limited liability.

Section 2 (62) of the companies Act, 2013 has defined one-person company as follows:
“One-person company means a company with only one person as its member. “Rule 3(1)
of the companies rules, 2014 provides that: