A company is an association of persons registered under the companies act who contribute capital in order to carry out business with a view of making a profit.
- The act of registering a company is referred to as incorporation.
- Incorporation creates an organization that is separate and distinct from the person forming it.
- A company is a legal entity that has the status of an "artificial person".
- It therefore has most of the rights and obligations of a human being.
- A company can therefore do the following;

• Own property
• Enter into contracts in its own name
• Borrow money
• Hire and fire employees
• Sue and be sued on its own right
• Form subordinate agencies, ie, agencies under its authority
• Disseminate or spread information

- The owners (members) of a company are referred to as shareholders.

- A company in an artificial person and has the same rights as a natural person.
- It can therefore sue and be sued in a court of law, own property and enter into contracts in its own name.
- The members have limited liabilities.
- Companies have perpetual life which is independent of the lives of its owners.
- Death, insanity or bankruptcy of a member does not affect the existence of the company.
- This is referred to as perpetual existence or perpetual succession.

People who wish to form company are referred to as promoters. The promoters submit the following documents to the registrar of companies

• Memorandum of Association
• Articles of Association
• A list of directors with details of their names, addresses, occupations, shares subscribed and statements of agreement to serve as directors
• Declaration that registration requirements as laid down by law (by the companies act) have been met. The declaration must be signed by the secretary or a director or a lawyer
• A statement signed by the directors stating that they have agreed to act as directors
• A statement of share capital- this statement gives the amount of capital that the company wishes to raise and its subdivision into shares

This is a document that defines the relationship between the company and the outsiders.
It contains the following:

• Name of the company/Name clause
• The objects of the company/objective clause
• Situation clause
• Capital clause
• Declaration clause - signed by a minimum of seven promoters for public limited company and a minimum of two for private company
• Names of the promoters

- This is a document that governs the internal operations of the company
- It also contains rules and regulations affecting the shareholders in relation to the company and in relation to the shareholders themselves.
- It contains the following;

• Rights of each type of shareholder e.g. voting rights
• Methods of calling meeting and procedures
• Rules governing election of officials such as chairman of the company, directors and auditors
• Rules regarding preparation and auditing of accounts
• Powers, duties and rights of directors
• Methods dealing with any alterations on the capital.

- Once the above documents are ready, they are submitted by the promoters to the registrar of companies.
- On approval by the Registrar and on payment of a registration fee, a certificate of incorporation (certificate of registration) is issued
- The certificate of incorporation gives the company a separate legal entity

• Shares
• Debentures
• Loans from bank and other financial institutions
• Profits ploughed back
• Bank overdraft
• Leasing and renting of property
• Goods brought on credit
• Acquiring property through hire purchase

- A share is a unit of capital in a company e.g. if a company states that its capital is ksh.100,000 divided into equal shares of ksh.10 each.
- Each shareholder is entitled to the company’s profit proportionate to the number of shares he/she holds in the company.
Types of shares
a) Ordinary shares - have voting rights, no fixed rate of dividends, have a claim to dividends after the preference shares, and they are paid last after liquidation.
b) Preference shares - have a a fixed rate of sharing profits, a prior claim to dividends over the ordinary shares, no voting rights, can be redeemable or irredeemable, can be cumulative or non-cumulative.

- This refers to loans from the public to a company or an acknowledgement of a debt by a company
- They carry fixed rate of interest which is payable whether profit are made or not
- They are issued to the public in the same way as shares
- They can be redeemable or irredeemable
- Redeemable debentures are usually secured against the company’s assets in which case they termed as secured debentures or mortgaged debentures

Private limited company has the following characteristics;

• Can be formed by a minimum of 2 and a maximum of 50 shareholders, excluding the employees
• Does not advertise its shares to the public, but sells them privately to specific people
• Restricts transfer of shares i.e. a shareholder cannot sell his/her shares freely without the consent of other shareholders.
• Can be managed by one or two directors. A big private company may however, require a board of directors
• Can start business immediately after receiving the certificate of incorporation without necessarily having to wait for a certificate of trading.
• It does not have an authorized minimum share capital figure.
• Has a separate legal entity and can own property, enter into contracts, sue or be sued.
• Has limited liability.
• Has a perpetual existence.

- It must have a memorandum of association, article of association list of directors, declaration signed by a director or lawyer and certificate of incorporation.

• Formation: The Company can be formed more easily than a public company. The cost of information is less than that of a public company
• Legal personality: A private company is a separate legal entity from its owners. Like a person, it can own property, sue or be Sued and enter into contacts
• Limited liability: Shareholders have limited liability meaning that they are not responsible for the company’s debts beyond the amount due on the shares
• Capital: They have access to a large pool of capital than sole proprietorship or a partnership. They can borrow money more easily from financial institutions because it owns assets which can be pledge as security
• Management: A private company has a larger pool of professional managers than a sole proprietorship or a partnership. These managers bring in professional skills in their own areas which are of great advantage to a private company
• Assured continuity of the business: Death, bankruptcy or withdrawal of a shareholder does not affect the continuity of the company
• Trading: Unlike a public company a private company can commence trading immediately upon receiving a registration certificate.

• Returns: A private company, unlike sole proprietorship or a partnership, must submit annual returns on prescribed forms to the registrar of companies immediately after the annual general meeting
• Capital: A private company cannot invite the public to subscribe to its shares like a public limited company. It therefore limited access to a wide source of capital.
• Share transfer: The law restricts the transfer of shares to its members/shareholders are not free to transfer their shares

Public limited companies have the following characteristics:

• Can be formed by a minimum of 7(seven) shareholders and no set maximum.
• Cannot start business before it is issued with a certificate of trading. This is issued after the certificate of incorporation and after the company has raised a minimum amount of capital
• It's managed by a board of directors
• The shares and debentures are freely transferable from one person to another.
• It advertises its shares to the public/ invites the public to subscribe for/buy its shares and debentures.
• Must publish their end of year accounts and balance sheets
• Must have an authorized minimum share capital figure
• Has a separate legal entity and can own property, enter into contracts, sue or be sued.
• Has limited liability.
• Has a perpetual existence.

• Wide range of sources of capital: It has access to wide range of sources of capital especially through the sale of shares and debentures
• Limited liability: Like private companies, public limited company’s shareholders have limited liability i.e. the shareholders are not liable for the company’s debts beyond the shareholders capital contribution.
• Specialized management: PLC’S are able to hire qualified and experienced professional staff.
• Wide choice of business opportunities: Due to large amount of capital a public company may be suitable for any type of investment
• Share transferability: Shares are freely transferable from one person to another and affects neither the company’s capital nor its continuity.
• Continuity: PLC has a continuous life as it is not affected by the shareholders death, insanity, bankruptcy or transfer of shares
• Economies of scale: Their large size enables them to enjoy economies of scale operations. This leads to reduced costs of production which raises the levels of profit
• Employee’s motivation: They have schemes which enable employees to be part owners of the company which encourages them to work harder in anticipation of higher dividends and growth in the value of the company’s shares.
• Share of loss: Large membership and the fact that capital is divided into different classes’ means that the risk of loss is shared and spread.
• Shareholders are safe guarded; Publicity of company accounts safeguard against frauds.

• High costs of formation: The process of registering a public company is expensive and lengthy. Some of the costs of information are legal costs, registration fees and taxes
• Legal restrictions: A public company must comply with many legal requirements making its operations inflexible and rigid
• Alienation of owners: Shareholders non-participation in management is a disadvantage to them
• Lack of secrecy: The public limited companies are required by law to submit annual returns and accounts to the registrar of companies denying the company the benefit of keeping its affairs secret. They are also required to publish their end of year accounts and balance sheets.
• Conflicts of interests: Directors may have personal interests that may conflict with those of the company. This may lead to mismanagement.
• Decision making: Important decision are made by the directors and shareholders. The directors and shareholders meet after long periods which make decision making slow/delayed and expensive.
• Diseconomies of scale: The large size and nature of business operations of public limited companies may result in high running/operation costs and inefficiency
• Double taxation: There is double taxation since the company is fixed and dividends distributed to the shareholders are also taxed
• Inflexibility: Public limited companies cannot easily change its nature of business in response to the changing circumstances in the market. All shareholders must be consulted and agree.

The following are the circumstances that may lead to the dissolution of a company:

- Failure to commence business within one year - If a company does not commence business within one year from the date of registration, it may be wound up by a court order on application of a member of the company.
- Insolvency – when a company is not able to pay its debts, it can be declared insolvent and wound up.
- Ultra-rives – this means a company is acting contrary to what is in its objective clause. In such a case, it may be wound up by a court order.
- Amalgamation – two or more companies may join up to form one large company completely different from the original ones.
- Court order – the court of law can order a company to wind up especially following complaints from creditors.
- Decision by shareholders – the shareholders may decide to dissolve a company in a general meeting.
- Accomplishment of purpose or expiry of period of operation – a company may be dissolved on accomplishment of its objects, or on expiry of period fixed for its existence.

- They are also referred to as state corporations.
- These are organizations formed by and/or controlled by the government (the government has a controlling interest).
- This means that the government owns more than 50% shares in the corporation.
- Where the government has full ownership, the organization is known as a parastatal.
- Public corporations are formed to perform certain/specific functions on behalf of the government.
- They are formed to provide essential services that are generally in the public interest, and that may require heavy initial capital investment which few private investors can afford.
- They are formed by the act of parliament.
- Some public corporations include; Kenya Railways corporation- provides railway transport, Postal corporation of Kenya, Mumias and Chemelil sugar companies among others.

• They are formed by the government under the existing laws i.e formed by an act of parliament eg education act
• Initial capital is provided by the government
• They are jointly owned by the government and members of public/private investors
• They are set up to perform certain specific functions on behalf of the government
• They are managed by a board of directors appointed by the government or appointed by the government and the joint owners
• They have an entity of their own and can own property, enter contracts, sue and be sued
• They have limited liability
• Some operate without a profit motive while others have a profit motive

Some are formed by an act of parliament while others are formed under the existing laws.
When formed by an act of parliament, the Act defines its status obligations and areas of operation outlining the following;

• Proposed name of the corporation
• Aims and objectives
• Goods or services to be produced and provided
• Location(Area of operation)
• The appointment of top executives
• The powers of the Board of directors
• The ministry under which it will operate

- The public corporations are managed by a board of directors appointed by the president or the relevant minister
- The chairman and the board of directors are responsible for the implementation of the aims and objectives of the corporations.
- The chairman of the board of directors reports to the government (president) through the relevant minister.
- The managing director who is usually the secretary of the board of directors in the chief executive officer of the corporation

• The initial capital is usually provided by the government as a vote of expenditure for the ministry concerned
• Those corporations jointly owned by the government and the public raise capital through the sale of shares
• Financial institutions in form of loans
• Retained profits/profits ploughed back.
• Hire purchase

• Initial capital is readily available because it is provided by the government
• Can afford to provide goods and services at low prices which would otherwise be expensive if they were left to the private sector.
• Most of them produce goods and services in large quantities thereby reaping the benefits of large scale production
• Some are monopolies. They hence enjoy the benefits of being a monopoly e.g. they do not have to incur costs advertising since there is no competition
• They can be bailed out/assisted by the government when in financial problems
• They have limited liability
• Money for research and development can be made readily available by the government
• Through corporations the government is able to remove foreign domination in the country
• They can afford to hire qualified personnel.

• They are managed by political appointees who may not have the necessary managerial know how.
• When they make losses, they are assisted by the government and this could lead to higher taxation of individuals
• Lack of competition due to monopoly leads to inefficiency and insensitivity to customers feelings.
• Political interference may hamper efficiency in the achievement of set goals and objectives.
• Decision-making is slow and difficult because the organizations are large.
• They may lack close supervision because of their large sizes.
• There is embezzlement of large sums of money leading to loss of public funds
• The government is forced to provide goods and services to its citizens in all parts of the country where at times its uneconomical to provide them because the costs of providing them may surpass the returns
• Public funds are wasted by keeping poorly managed public corporations.
• Diseconomies of scale apply in these business units because they are usually very large scale organizations e.g. decision making may take long.

They can only be dissolved by the government due to:

• Persistent loss making
• Bankruptcy- where the corporation cannot pay its debts
• Change in the act of parliament that formed the corporation
• Privatization
• Mismanagement, resulting in poor management of the corporation