1 - Limited Companies

Question 1

What are the main benefits of an incorporated business over an un-incorporated one?

Answer 1

• Limited Liability
• A separate legal entity
• The owners of the business and the business are separate
• The owners and people that run the business are ofter different people

Question 2

What are some of the benefits of trading as a limited company?

Answer 2

• Limited liability status
• Easier to raise finance
• Company continues to operate regardless of ownership
• Taxed under corporation tax

Question 3

What are some of the disadvantage of trading as a limited company?

Answer 3

• Company accounts are submitted to Companies House where anyone can access them
• More regulations to comply with (companies act 2006)
• Accounts of larger companies must be audited
• Issues of shares are highly regulated

Question 4

What is the formula for shareholder equity?

Answer 4

Share capital + Retained Earnings + Other reserves

Question 5

Why are preference shares not alway in the equity section?

Answer 5

If they are considered redeemable, then there is an obligation to allow them to be redeemed in cash. As a result they are classified as a liability instead

Question 6

What are some examples of other reserves?

Answer 6

• Share premium account
• Revaluation surplus
• Capital redemption reserve
• General reserve