Forms of Business Organizations II (Limited Liability Company and Cooperative Society)

Week: 9 (Nine)

Topic: Forms of Business Organization II

Limited Liability Company: A limited liability company is a business organization recognized by law as a separate entity different from its owners. The number of persons required to establish a limited liability company can range from two to fifty.

Features of Limited Liability Company

1. It is owned by more than one person.
2. It is seen as a separate entity different from its owners. This means it has legal entity or artificial personality.
3. It can sue and be sued.
4. It is brought into existence by a process called incorporation.
5. The name of the company always ends with either “Ltd” (Limited) or “Plc” (Public Limited Liability Company).

Advantages of Limited Liability Company

1. The owners have limited liability towards the business. This means if the business fails, the owners will lose only the amount they invested in establishing it.
2. It makes it possible for better skilled managerial staff to run the business.
3. There is more capital made available to the business.
4. The business usually survives the death of any single owner.
5. The business usually has unlimited growth potential.

Disadvantages of Limited Liability Company

1. Constant disagreements among management staff of the company.
2. Delay in business decision making.
3. It is not easy to establish.
4. It is not simple to manage.
5. It requires large capital to establish.

Cooperative Society: A cooperative society is a business organization that is set up by the coming together of a group of persons who have similar personal or business interests and are willing to work together to the betterment of those interests.

Types of Cooperative Society

1. Consumer Cooperative Society: This is a type of cooperative made up of consumers of particular product. Their aim is to work together to give themselves an advantage in always getting the product in their desired quantity and price. They buy the goods in bulk and sell to their members at fair prices.
2. Producer Cooperative Society: This is formed by producers of a particular commodity to take advantage of their large number either to process or market their product.
3. Credit Cooperative: The aim of this type of cooperative is pool funds together and give loans to their members at very minimal interest rates.
4. Marketing Cooperative Society: The members come together and agree to pool their products together to enable them sell in large quantities.
5. Multi-purpose Cooperative Society: This is a cooperative society which is formed to perform two functions for the members. For example, credit and marketing.

Advantages of Cooperative Societies

1. It makes doing business easier.
2. It helps members get better business offers and deals.
3. The unity and support help businesses grow.
4. Working as a team or group increases the chances of business success.
5. It helps small businesses enjoy the benefits of big and strong businesses.

Disadvantages of Cooperative Societies

1. Conflicts and disagreements among members can harm businesses.
2. Embezzlement of funds can lead to the death of the cooperative and affect businesses negatively.
3. Poor management from members without the necessary managerial skill can adversely affect the cooperative.
4. Delays in decision-making can negatively affect businesses and the cooperative.

Homework

1. Since a limited liability company is difficult to establish, why would anyone choose to set it up instead of sole proprietorship that is easy to set up?
2. If you are a trader in building materials, why would you want to join a cooperative? What type of cooperative would you join?