1.4.2 Types of business organisation

Question 1

shareholders means

Answer 1

the owner of a limited company

They buy shares which represent part-ownership of the company.

Question 2

private limited company

Answer 2

businesses owned by shareholders but they cannot sell shares to the public.

Question 3

benefits of private limited company

Answer 3

• raise capital from sale of shares
• shares can be sales to large number of shareholder (but can not advertise to sale the shares)
• limited liability for shareholders
• separate legal identity
• continuity

Question 4

disadvantages of private limited company

Answer 4

• cannot sell shares to public
• need legal formalities to form the company.
• accounts are available for public to see
• not easy to transfer shares.

Question 5

public limited company

Answer 5

businesses owned by shareholder
but they can sell shares to to public
and their shares are trade able on the stock exchanges.

Question 6

Are public limited company in public sector?

Answer 6

no

Question 7

Advantages of a public limited company

Answer 7

• limited liability
• incorporated business means has a separate legal identity to owner or shareholder.
• can sell shares to public
• rapid expansion possible
• can raise very large capital sums
• no restriction in buying, selling or transfer of shares.
• has high status can attract :
  »»»suppliers prepared to sell goods on credit
  »»»banks willing to lend money

Question 8

disadvantages of a public limited company

Answer 8

• need legal formalities to form the company which is complicated and time consuming
• more regulations and controls to protect the interests of shareholders. This include the publication of accounts
• selling shares to public is expensive such as commission for a specialist merchant bank, printing and publication of thousands of copies of the prospectus.
• original owner might lose control over the company when it goes public.

Question 9

annual general meeting

Answer 9

a legal requirement for all companies.

Shareholders may attend and vote on who they want to be on Board of Directors for the coming year.

Question 10

how shareholder take control on public limited company

Answer 10

by attend the annual general meeting then:

• vote for Board of director who take all important decisions
• appoint managers for day-to-day business decisions.

Question 11

Dividends

Answer 11

means PAYMENTS made to shareholders from the profits (after tax) of a company.
They are the RETURN to shareholders for INVESTING in the company.