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School of Business

Case Report on:


Corporate Governance FIN - 547 Section - 01 Home Assignment - 2

Prepared for: Dr. Chowdhury Saleh Ahmed

Prepared by:

Md. Asad-uz-zaman 0410094

Date of Submission: 14/02/2012

From the features of proprietorship and partnership, develop features of corporate body. Corporate body or limited liability company, quite simply is a company whose liability is limited. Thats the short version. The longer version is that a limited company is a type of company which when set-up allows an entrepreneur to keep their own assets and finances separate from the business itself whereas it is opposite in proprietorship and partnership business. This means that people who have invested in the business (the shareholders) are only responsible for any company debts up-to the amount that they have invested and no more. It is therefore a good way for a business to get investment and run without risk to a personal wealth. Essentially a Limited Company is seen as an entity in its own right, which can be subject to legal action. As a separate body, a limited company can even be the director of another company. The main features of corporate body compare to the proprietorship and partnership are discussed below: Limited Liability: The obvious advantage of a Limited Liability Company compare to proprietorship and partnership business is the financial security that comes with business. As already mentioned, the Companys shareholders will only be liable for any debt the company accrues according to the levels of their own investment and no more. This can provide a comfortable feeling of security for investors in the Company. Separate Entity: Due to its very nature, a limited company is deemed to be a separate legal entity from its owners. This has several advantages, including the fact that the company will exist beyond the life of its members. If they retire or die, the company will continue to exist and operate. This ensures security for employees and other members and also is an advantage which other legal forms of business are not subject to. Ownership and Control: In the case of Private Limited Companies, the Directors are also the main shareholders of the Company. Thus both the ownership and control of the business remain in their hands. Decisions can be made quickly and easily, with little fuss, allowing for a more successful business management platform. Maximum number of people: In proprietorship business maximum number of owner is only one and partnership business maximum number of owner is only twenty whereas in a private limited

company the minimum is two and maximum is 50. In a public limited company the minimum is seven and no limit on maximum. Registration and regulations: In proprietorship business no registration is required and in partnership business register the partnership reed with the Registrar of Firms is often required, besides in limited company, registrations required to start. service tax, professional tax, Provident Fund is mandatory in such type of business. Termination: In proprietorship business, ownership dissolve on the death of the sole proprietor and in case of partnership business, dissolved on the death of a partner, unless there is a contract to the contrary also can be terminated by voluntary action of dissolving the partnership. Whereas in case of limited company, death of any Director or any person, company will not be affected, its lifetime is perpetual. Management: In proprietorship business, proprietor has full control of management and operations. In partnership business, all the members have an operating agreement that outlines management. Whereas in limited company, the management is usually managed by the directors, who are elected by the shareholders and limited partners are excluded from management unless they serve on the board of directors. Capacity to litigate: In Proprietorship business proprietor is not a separate entity, hence the individual can sue or be sued and in partnership business, only a registered partnership firm can sue or be sued. Else, action may be brought in the name of the members either individually or collectively. Besides, company is a separate legal entity, a company can sue and be sued in its own name, its owners will not be sued. The limited partnership may be the best features of business when it finally becomes law. Limited Company should be looked at closely when you are dealing with high incoming costs, where the gain is a lot lower than the risk if a customer should default on payment. However if you are selling mainly time, or a high profit item, consider the tax advantages of sole trader or partnership.