Human needs and wants are ever growing. In order to meet them production must be carried on, on a large scale. For this, large amount of capital, modern technology and managerial skills are needed for business units. Sole proprietorship and partnership firms may not be able to raise large amount of capital to equip themselves with these. To overcome this limitation, the concept of ‘Company form of organisation’ came into existence. The capital of companies is divided into small units called shares. Capital needed by the company could be raised by inviting the general public to buy shares and invest in the business. These investors are called shareholders or members of the company. The money raised by issuing shares is called share capital. Profits are distributed among the shareholders in the form of dividends.
It is not practical for all the members to take part in the management of the company. So, they appoint, at the annual general meeting, board of directors who take part in the management of the business. The liability of the shareholders is limited to the face value of shares. A limited company differs from other forms of business units. It has a separate legal entity.