Companies Limited by Shares

“Company Limited by Shares" is a company in which the liability of the members (shareholder) of the company is limited to the amount of share capital that they have contributed. This means that the owners will only suffer a loss to the extent of the amount contributed as capital, in case the company is closed and its assets are insufficient to repay its liabilities. 

Section 2 (8) of the Companies Ordinance 1984 sates:

"company limited by shares” means a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.

Types of Companies Limited by Shares

Following are the types of companies limited by shares:

  • Private Limited Companies
  • Single Member Companies
  • Public Limited Companies
    • Public Listed Companies
    • Public Unlisted Companies

Private Limited Companies

Companies that restrict the right of shareholders to transfer their shares to a person other than the existing shareholders. 

If a member wishes to sell his shares he will first have to offer the shares to the existing members. In case, none of the existing members accepts the shares and at the same time does not object to the selling of the shares to an outsider only then the shares can be sold to an outsider. Private Limited companies use the words “Private Limited” or “(Pvt) Ltd” at the end of their name.

The maximum numbers of shareholders allowable in a private limited company is 50.

Private Limited Company is defined in Companies Ordinance 1984 in Section 2 (28) as:

"Private company" means a company which, by its articles, —

  1. restricts the right to transfer its shares, if any;
  2. limits the number of its members to fifty not including persons who are in the employment of the firm or company;
  3. and prohibits any invitation to the public to subscribe for the shares, if any, or debentures of the company:  If, where two or more persons hold one or more shares in a company jointly, they will, for the purposes of this definition, be treated as a single member;

Single Member Companies

Single Member Companies are also private limited companies but there is only one shareholder in the company. Before 2002 there was limit of two for the minimum number of shareholders in a private limited company. However, the limit was relaxed and companies with only one member were also allowed.

In case of a single member company two persons are compulsory to be nominated to take over the company in case of the death of the member.

Public Limited Companies

Public Limited Companies are those companies in which there is no restriction of transfer of shares. There is also no limit as to the maximum figure or number of shareholders. However, the minimum number cannot be less than three. Public Limited Companies uses the words “Limited” or “Ltd” at the end of their name.

Public Limited Company is defined in Companies Ordinance 1984 in Section 2 (30) as:

"Public company" means a company which is not a private company.

Public Listed Companies

Public Listed Companies are those public companies whose shares are traded on stock exchanges. These are also called “quoted companies”.

Public Unlisted Companies

Public Unlisted Companies are those public limited companies whose shares are not operated or traded on any stock exchange. These are also called “public unquoted companies”.  

financial accounting

May 07, 2017