There are two classes of company, the private company and. the publics company. In fact, private companies outnumber public companies by a considerable number. A private company is one which has a minimum membership of two and fulfills the following conditions
(a) It restricts the right to transfer its shares.
(b) It limits the number of its members to fifty, excluding employees and ex-employees of the company
(c) It prohibits any invitation t the public to subscribe for any shares or debentures of the company.
Any company which does not fulfill the above conditions is a public company. These have a minimum membership of seven and no maximum limit. Note that a shareholder of a limited company obtains his reward in the form of a share of the profits known as a Dividend. The directors consider the amount of profits and decide on the amount of profits which are placed to reserves. The dividend is usually expressed as a percentage.
There are two main types of shares, preference shares and ordinary shares. A preference share is one whose main characteristic is that it is entitled to a specified percentage rate of dividend before the ordinary shareholders receive anything. On the other hand, the ordinary shares would be entitled to the remainder of the profits, which have been appropriated for dividends.