Question

TASK 1.2 Theory: Concepts relating to companies Work in pairs for this Task. Discuss the following questions and then share your answers with the rest of the class 1.2.1 What is meant by the concept of limited liability' and 'separate legal identity' in con- nection with companies? Why could the concept of limited liability not be allowed in the cases of businesses operating as doctors, lawyers or accountants? 1.2.2 1.2.3 Why are big companies important to a country? 12.4 How does the concept of limited liability assist big companies to exist in a country? 1.2.5 Why is it important for companies to contain the word LIMITED' in their names? 1.2.6 Why does a company pay Income Tax, yet a sole proprietor or partnership does not? of ownership from control' in respect of a company? sess? Explain why each of these characteristics is important. 1.2.7 What role does a director of a company fulfil, and what is meant by the 'separation 1.2.8 In your opinion, what personal characteristics should a director of a company pos- New Era Accounting 20 Grade 12 1.2.9 What are the advantages of a company over a partnership? 1.2.10 What are the advantages of a partnership over a company? 1.2.11 Why is it important for all companies to be registered with the Companies and Intellectual Properties Commission?

Answer 1

Answer to the Questions are given below:

1.2.1. Limited Liability and Separate legal identity

Separate legal identity and limited liability in respect of a Company, though linked, but have differences.

A Company has its own legal identity and is separate from its members legal identity. The members of the Company have a limited liability.

Limited liability is the logical consequence of the existence of a separate personality. The concept of limited liability was introduced by Limited Liability act.

The most notable advantage of limited liability for a business entrepreneurship is linked to the minimization of risk. Shareholders hide behind the corporation veil, to which this protection encourages them to take reasonable risk.

A limited liability business is offered taxation advantages.

Members are protected from the companies liability and as such are protected from litigation.

Limited liability means members of business entrepreneurships have a separate identity from the company.

1.2.2. Concept of limited liability not be allowed in the cases of businesses operating as doctors, lawyers or accountants

In some professions it is impossible to reap the benefit of limited liability. Professional like lawyers, doctors, accountants, engineers, or architects are prevented by law and ethics from limiting their liability. These professionals are personally responsible for their decisions so that they always make the decisions carefully.

1.2.3. Why are big companies important to a country?

Economic growth is an important weapon in the fight against poverty and hunger in a country. For increasing economic growth, every country require to set up business in such a way that it increases the trade, jobs etc. In such situations big companies are encouraged which help not only increasing the trade but also create jobs.

There are many advantages of a big company as compared to small companies.

The big companies are more established and have greater access to funding. They also enjoy more repeat business, which generates higher sales and larger profits than smaller companies.

The big companies are able to establish multiple revenue streams to help offset economic downturns.The size of big companies means that they are often engaged in selling many different types of products and services, which helps insulate them against unforeseen changes in the economy.

Big companies have the financial resources to invest in foreign markets. They can establish subsidiaries overseas and expand their market share.

1.2.4. How does the concept of limited liability assist big companies to exist in a country.

Concept of limited liability assist the big companies to exist due to various factors, few of which are explained below:

- Limited liability concept creates confidence and this encourage them to invest in big companies.

- this concept encourage the big companies to take reasonable market risks and increase the business.