Limited Companies and Financial Statements of Limited Companies

Question 1

Entities other than limited companies include :

Answer 1

Sole Traders and Partnerships.

• Sole traders and some partnerships operate at great personal risk to the owners.
• They may be asked to settle debts out of their own private resources.
• This is why there is a need for entities with limited liability

Question 2

Limited Liability Companies :

Answer 2

• No matter what financial difficulties a limited liability company faces, the shareholders, who are the owners of the company, cannot be forced to contribute more than the equity introduced by each owner (shareholder).
• Since this puts companies, and their shareholders, in a privileged position, limited companies are therefore bound by some fairly severe legal operating restrictions.

Question 3

Features of a limited liability company:

Answer 3

• An artificial person created by law
• Granted a perpetual existence
• Takes responsibility for its own debts and losses
• Its owners are granted limited liability
• Raises equity by issue of shares
• Governed by a board of directors elected by the shareholders