NABTEB Economics 2013 Theory — Question 10

Model answer

(i) Limited Liability: shareholders do not suffer more loss than the amount of their capital contribution in the business. (ii) Perpetual existence (continuity): the company continues to exist even if a shareholder changes or sells their shares. (iii) Access to large capital: the company can raise large capital by selling shares to the public through the stock exchange, making it easier to obtain funds for expansion or investment. (iv) Shares are easily transferred: a shareholder can transfer their capital at will if dissatisfied with the company; this also leads to invention/innovation, application of division of labour and specialization, and separation between business and management, allowing efficient management.