Following on from my blog on company characteristics, I thought I would write a quick blog on the different types of companies that are common today.
Companies are classified according to liability, size and where they are listed. We will discuss the first two and the resulting 6 common types of companies we arrive at.
Classification according to member liability
1 – Companies limited by shares (known as ‘limited liability’ companies)
Typically, members are usually shareholders and their liability is limited to the nominal (nominal capital is defined as the capital with which the company was incorporated) value of their shares plus any unpaid amount on their shares.
As an example, say you buy BHP shares at $10 for 100 shares, then your liability is limited so that if BHP were to be sued, it is limited to the $10 paid. This is sometimes conducted differently when you don’t fully pay for shares when the company floats. If $5 was paid and $5 was then owed on the shares, then the remaining amount must be contributed should it be called upon.
As we probably know by now, the significance is that shareholders are not liable for the full amount. This is known as the share capital method of corporate finance. Another method is by debt – going to a bank and asking for money to be lent. This is a different contractual agreement. Continue reading Six different types of public and proprietary companies