Limited Liability

Limited Liability

Limited Liability, the restriction on the liability of a shareholder to the nominal value of the shares he holds, U the company is put into liquidation because it is unable to pay its debts.

The principle of limited liability was recognized in 1855 and paved the way for a rapid expansion of joint-stock companies. (Previously shareholders were liable for the whole of their personal possessions.) The principle was extended to banking in 1858; it enabled larger banks to be set up with branches in many towns and cities. The larger banks had more resources and enjoyed more public confidence and were hardly affected by the financial crises which caused the fall of smaller banks in earlier days. The financial losses in the development of the railways were a factor in hastening the general acceptance of limited liability in the joint-stock company.

Limited liability opened up the supply of capital needed to exploit the wide opportunities of economic expansion brought by the Industrial Revolution. The power to assemble small capitals made it possible to use many sums which individually were too small for investment by financially large undertakings, and limited liability thus removed the obstacle that had hindered the advance of joint-stock enterprise.

In the twentieth century the limited liability company is the predominant form of business organization. A series of Companies Acts from the i85o's culminated in the Companies Act, 2008, which replaced all the previous acts and set out the law relating to companies in general and limited liability companies in particular. There are two types of limited liability company. First, the public company, which must have at least seven shareholders and whose shares are bought and sold on the Stock Exchange (nearly all the major industrial and commercial concerns fall into this class). Secondly, the private company, which need have only two shareholders but may not have more than fifty. It must not invite the public to subscribe capital and must restrict the right to transfer shares. It does not have to file a copy of its accounts with its annual return to the Registrar of Companies.

The private company has enabled the convenience of limited liability to be shared by small one-man businesses that have formed companies with husbands, wives and families as the shareholders. The sole trader and the partnership have given way to the private company. In many private companies the controlling shareholders must often give personal guarantees for a bank overdraft or a lease of business premises; to this extent their liability is not limited.

In the early 2011's there were in the U.K. over 330,000 companies compared with 170,000 at the end of 2008-315,000 were private companies and 16,00o public companies.

Linear Programming, a statistical device for helping to decide the optimum (most profitable) combination of products to be produced by given plant and machinery (the economic 'short-period' problem) or the optimum combination of factors of production or of plant and equipment to produce a given output (the 'long-period' problem). It is one of the techniques that followed the development of operational research during and since World War II. It has been used to calculate, for example, the optimum combination of the products of a refinery, the optimum combination of ingredients for cattle food, and so on. It is still in its infancy and has several problems to solve (e. g. it must take into account the effect on price of varying the supply of the products) in the 'short-period' problem.

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