Limited Company | Advantages, Disadvantages, Elements, And Characteristics

We explain what a limited company is, how it is classified and its elements. Also, what are its general characteristics and advantages.

What is a limited company?

A corporation, abbreviated as SA, is a commercial company whose owners (shareholders) participate in the capital stock through titles or shares.

These shares can be distinguished from each other by their nominal value or by the privileges attached to them, thus establishing various hierarchies among the holders.

One of the important features of a Limited Company is that the shareholders are not liable for their debts through their respective personal assets , but up to the maximum amount of the contributed capital.

Usually the creation of these companies is regulated by commercial law.

History of the Stock Company

The direct antecedent of the Stock Companies are the Commercial Companies .

They were European companies that were established in the different colonial territories of America , Africa and Asia in the 18th century.

They made it possible to finance the high cost of each trip by transporting raw materials to the metropolis.

They were semi-public entities in which the monarchs were associated with the bourgeoisie and small capitalists , under a figure of profit sharing.

Later, in the 19th century, this type of initiative passed entirely into private hands in almost all the countries of Europe .

The model to follow was the English Company Act (1862) and the French Commercial Code (1807) , founding the basic postulates of a Public Limited Company.

Types of public limited company

Limited Companies can be of two types:

• Open capital (SAA). They are those that aspire to numerous shareholders, who enjoy greater commercial freedoms with respect to their titles, which go to the stock market.
• Closed capital (SAC). Limited to a specific number of shareholders, it does not register its shares in the Public Registry of the Stock Market, nor does it allow the free transfer of shares.

Elements that make up a Public Limited Company

A Public Limited Company is usually made up of:

• A General Meeting of Shareholders. Also called the General Assembly of Members, in which those in charge of the administration of the company are elected , based on the participation of its shareholders, in person or through authorized legal representatives. It is the highest-ranking institution in the company.
• An administrator of the company. Someone who will exercise the executive and representative functions of the company, and who will be chosen by the General Shareholders' Meeting. It can be an individual or sole administrator, several joint administrators, a Board of Directors (also called the Board of Directors) or a Socio-economic Administrator.
• A supervisory council. A figure that does not exist in all countries, but that is in charge of supervising the work of administrators and keeping the affairs of the company under internal control.

Differences with a Limited Company

These two types of capitalist society are distinguished in:

• Limited companies require little initial capital and are usually appropriate for companies with few partners. The SA, on the other hand, is better adapted to large companies, in which the capital of all the partners can be agglomerated.
• The transfer of shares in an SL must be given under notification to the shareholders' meeting, who will have the full exclusivity of preferential purchase, the seller having to also inform who will be the new holder and provide all the information that is requested. In an SA, on the other hand, commercial transactions are free and only respond to the commercial code of the law .
• In an SL the liability of the partners is joint and several, while in the SA it is limited to the invested capital.

Requirements to create a Public Limited Company

In order to found a Public Limited Company, some requirements established in the commercial laws of each country must generally be met.

The usual thing is that it is required:

• A minimum of partners or shareholders, all subscribing at least one share each.
• An established minimum of capital stock or subscription of the shares.
• A constitutive document of the corporation that responds to the regulations of the law.

Legal personality

A Public Limited Company constitutes a legal person, therefore it will respond as such before the competent courts or tribunals in any eventuality.

International denominations

Depending on the country in question, Public Limited Companies may be called that way, or they may be known as Anonymous Company, Anonymous Corporation , or in Anglo-Saxon countries as PublicLimited Company (PLC).

In other countries allusion is made to its internal way of distributing securities , such as in Italy : Societa per azioni or “Company by shares”. All these terms refer to the same thing.

Taxation

Public limited companies pay taxes, of course, and they usually do so through laws or special tax codes , such as the Spanish Corporation Tax (25% since 2016), for example.

According to the tax laws of each country, the Public Limited Companies will pay more or less taxes than other entities.

Advantages of a limited company

Some advantages of forming a Public Limited Company are:

• Freedom . The partners can freely trade their shares and the Company can list them on the stock exchange.
• Protection. Since partners have limited liability, their personal assets are protected.
• Flexibility. It can be constituted with a variable number of partners, and in some countries it can even be only one (Sole Shareholder Company).

Disadvantages of a Limited Company

On the contrary, the disadvantages of this type of association are:

• Minimum capital. In order to establish a Public Limited Company, a minimum of available and proven capital is usually necessary, as stipulated by law.
• Strict operation. It is much stricter in its actions and more rigid than other forms of mercantile society, since it is much more supervised by the State .
• High tax rate. It is also usual for Limited Companies to be charged with high taxes, but this is not a rule.

The above content published at Collaborative Research Group is for informational and educational purposes only and has been developed by referring reliable sources and recommendations from experts. We do not have any contact with official entities nor do we intend to replace the information that they emit.