Lesson Notes By Weeks and Term - Senior Secondary School 1

SUBJECT: ECONOMICS                                    

CLASS: SS 1

TERM: 2ND TERM

WEEK SIX

TOPIC: JOINT STOCK COMPANIES AND CO-OPERATIVE SOCIETIES

CONTENT

• Joint Stock Companies

• Private Limited Company
• Public Limited Company

• Co-operative Societies

MEANING OF JOINT STOCK COMPANIES

A Joint Stock Company could also be called a co-operation but it is popularly known as limited liability companies. The shareholders are the owners. They nominate and vote or select members of the Board of Directors. The weight of the vote of a shareholder is determined by the number of shares he has in the company. The owners are the shareholders who have limited liabilities.

CHARACTERISTICS OF JOINT STOCK COMPANIES

1. Capital is raised by share subscription
2. It is managed and controlled by elected board of directors
3. The aim of the business is to maximize profits
4. Perpetuality of the business is guaranteed even at the death of a member
5. Liability is limited to the amount of share subscribed by members
6. Ownership is either entirely by private individuals or jointly owned by individuals and government 
7. The reward of the business owners is dividend

TYPES OF JOINT STOCK COMPANIES

1. Private limited liability company
2. Public limited liability company 

PRIVATE LIMITED LIABILITY COMPANY  

It is owned by a minimum of two and maximum of fifty shareholders. It must have “limited “ at  the end of the company `s name reflecting the fact that the owners liability is limited to the amount invested in the business

ADVANTAGES

1. It has limited liability.
2. It is a separate legal entity. 
3. It can easily raise funds from financial institutes. 
4. There is continuity. 
5. Ownership could e separated from management.

DISADVANTAGES

1. Shares cannot be sold directly to the public
2. Shares are not transferable without consent of other shareholders
3. Decisions could be delayed
4. Serious disagreement may lead to liquidation 
5. Payment of tax affects expansion tendencies 

EVALUATION 

1. What is a joint stock company?
2. What are the advantages of private limited liability company? 

PUBLIC LIMITED LIABILITIES COMPANY

This company has a minimum of seven shareholders with no maximum limit. It has all the attributes of a private company with the addition that it can sell shares to the public through any approved means. They normally add PLC to their names and its shares can be traded in the stock exchange market.

ADVANTAGES 

1. It has limited liability.
2. It has a separate legal entity. 
3. It has unlimited source of financing. 
4. It enjoys economies of large scale production. 
5. There is continuity. 

DISADVANTAGES

1. It is expensive and legally difficult to establish.

The management is very complex.

1. No tax advantages.
2. Decision making process is very complex.
3. Personal interest decreases.
4. No secrecy, lack of privacy and flexibility. 

DIFFERENCE BETWEEN PUBLIC AND PRIVATE COMPANY OR THEIR CHARACTERISTICS

EVALUATION

1. What are limited liability companies?
2. In a tabular form differentiate between private and public limited liability companies

CO-OPERATIVE SOCIETIES

A co-operative society may be defined as a self  help voluntary organization in which a group of individuals who have common interest come together to form a business for the benefit of its members. It is set up to assist its members to achieve its desired objectives. It is one of the oldest forms of business organization existing today.

CHARACTERISTICS OF CO-OPERATIVE SOCIETIES

1. Its perpetuality  is guaranteed even at the death of a member
2. Liability is limited to the amount contributed by each member
3. Its control and management is democratic in nature
4. Sharing of profit is based on patronage
5. Its aim is to promote the interest and welfare of the members
6. Capital is through voluntary contributions by members

TYPES OF CO-OPERATIVE SOCIETIES 

Generally, six (6) types of co-operatives societies exists namely;

1. Consumers Co-operatives society
2. Producers co-operative society 
3. Credit and thrift co-operatives society
4. Retail co-operative society 
5. Wholesaler co-operative society
6. Multipurpose co-operative  society.

Consumer Co-operative Society: Consumer pool their resources together in order to buy goods in large quantity (bulk) from the manufacturers and sell directly to their member at cheaper rates . The profit is shared among members. Depending on quantity of goods bought, members have equal rights. Membership is by paying subscription when they join.

Producers Co-operative Society: These are producers who come together to either produce collectively or market their product jointly. This is common in farming and fishing .

Credit and Thrift Co-operative Society: This is pooling together of small savings from its members which is normally loaned out to members at moderate interest rate . Member ship of co-operative societies is voluntary.  Anybody can join and decide to leave any time he/she feels like .Everybody has equal rights, you can vote and be voted for. Members elect a committee to run the affairs of the society.

Retailer Co-operative Society: This is established and managed by a voluntary group of retailers in order to make goods available to members at reduced prices.

Wholesaler Co-operative Society: This is made of wholesaler who pool resources together to purchased goods in larger quantities from the producers and sell in small quantities to the retailer.

Multipurpose Co-operative Society: This is a co-operative society movement, which combines the functions of all other co-operative society.

EVALUATION 

1. Define co-operative society.
2. List the types of co-operative society.

ADVANTAGES

1. Encouragement of saving habits among members
2. The running of the affairs of the society is democratic.
3. Members have loyalty to the co-operative 
4. There is better and easy access to loans by members
5. Prices of goods are cheaper to improve members standard of living 
6. Education of their members is enhanced 
7. Small scale producer benefits from economies of scale.

DISADVANTAGES

1. High rate of embezzlement and mismanagement of funds
2. Denial of individual initiatives
3. Indiscriminate enrollment of membership
4. Evasion of tax
5. Non-chalant attitude by co-operative members
6. It has n0 goods of its own brand

EVALUATION

1. Describe different types of co-operative.
2. List the disadvantages of co-operatives

SHARES, BONDS AND DEBENTURES

A SHARE: is a unit of capital measured by a sum of money which is an individual portion of the company’s capital owned by a shareholder. The owner of a share in a joint stock companies is called a shareholder.  Two major categories of share are:

1. ORDINARY SHARES: also called ‘Equity Shares’ are the shareholders who are the real owners of the business. Ordinary share is sub-divided into two:

Deferred or Founder Share- is the shareholder who is entitle to the remainder of the profit after all other shareholders have been paid.

Preferred Ordinary Share- is the shareholder who has preference over other classes of ordinary shareholders

1. PREFERENCE SHARES: are the types of shareholder which have priority in terms of divided payment and repayment of capital in the event of liquidation or winding up of the business. Sub-divisions of preference share are as follows:

Cumulative Preference Share- has priority in the sharing of dividend over others and entitled to collect arrears of dividend.

Participating Preference Share- the shareholder is entitled to further percentage of dividend apart from their fixed dividend

Redeemable Preference Share- the shareholder has prior claims to dividend before all other preference shareholders. The owners of the business can buy this share back after sometimes

Non – Cumulative Preference Share – the dividend does not accumulate from one year to another. Where a company fails to pay dividend in a particular year, no dividend will be paid to the shareholder for that year nor will it be carried forward.

Non – Participating Preference Share – the shareholder is not entitled to further dividend after the ordinary shareholders have been paid

A BOND: is any interest bearing or discounted government or corporate security that obliges the issuers to pay the bondholder on specified sum of money annually at a specific intervals and to repay the principal amount of the loan at maturity. Bondholders have an IOU from the issuer but no corporate ownership privileges as shareholders. In other words, bonds are certificate of indebtedness 

showing the amount the issuer owes the bondholder. Types of bonds are: i  Bearer/registered bond, ii Secured bond, iii Convertible bond.

A DEBENTURE: A debenture is an instrument or a loan certificate for raising a long – term loan from the public by a limited liability company. A debenture is a debt and a debenture holder is not a co-owner of the business but a creditor. He receives a fixed rate of interest on his capital whether the company is making profit or not. His money is repaid at maturity, at an agreed date. If the business fails, he receives back his capital before the shareholders. So, by taking debentures a firm can raise capital externally. Types of debenture are as follows:

i, Mortgage debenture – is a debenture which is issued on the security of the company’s property or fixed assets

ii Floating debenture – is a debenture which is not attached to the security of any company’s asset or property

EVALUATION

1. What is a debenture?
2. State types of bond

READING ASSIGNMENT 

Amplified and Simplified  Economics for SSS By Femi Longe Chapter 9Pages 108-118

Fundamentals of Economics for SSS By R.A.I. Anyanwuocha Chapter    Pages

GENERAL EVALUATION QUESTIONS

1. Write short notes on;

1. Limited liability
2. Legal entity.
3. Shares

2. Calculate the mean deviation for 6,4,7,8,9,12.

1. Define the mode.
2. State five features of a public limited liability company.
3. List four disadvantages of a private limited company.

WEEKEND ASSIGNMENT 

SECTION A. 

1. Joint ventures are partnership involving? A. the poor and the rich B. employees and workers C. government and private investor D. multinationals and individuals
2. All the following are sources of finance to a Joint stock company except A. bank loan B. equity shares C. Debentures D. co-operative thrift 
3. The joint Stock company can be a private company whose minimum membership is A. 2B. 5C. 7D. 10 
4. The management of public limited company is by the A. customers B. shareholders C. board of directors D. government
5. The maximum membership of a private company is A. 50B. 100C. 1000 D. unlimited

SECTION B

1    a. Define co-operative societies.

1. Mention its types
2.   With the use of a table give three differences between a private and a public company