6. Law: Private & Public Limited Companies | Formation of a Company with Public or Private Limited Liability | Corporation Tax

Question 1

What minimum positions are needed for a Ltd Company?

Answer 1

A private Ltd Company only requires one member

Ltd Company needs a designated director (16yrs) & shareholder

Question 2

What is the minimum number of shareholders needed for a LTD?

Answer 2

one shareholder

Question 3

When you setup a Limited Company what must you ensure you do with the name of the company?

Answer 3

you must use “Limited” or “Ltd” at the end

Question 4

How long should the copies of the accounts for a LTD be kept for?

Answer 4

six years from when they were first made

Question 5

What are the five main advantages of a Ltd Company?

Answer 5

limited liability

tax savings

investment capital

professional image

formation of legal contracts

Question 6

Discuss “Limited Liability” as an advantage for a Ltd Company

Answer 6

financially - members are only responsible for any debt equal to the amount of capital they initially invested

legally - legally protected from being sued

legally - legally protected from being responsible for negligence or misconduct of any other members

Question 7

Discuss 2 points for “tax savings” as an advantage for a Ltd Company

Answer 7

tax reduction - a Ltd Company pays a lower corporation tax (19%) vs income tax (20-45%)

tax flexibility - in choice to reinvest profits back into business

Question 8

Discuss “formation of legal contracts” as an advantage for a Ltd Company

Answer 8

a Limited Company is a legal “person” in its own right

its a totally separate entity from its members

companies can therefore enter into legal contracts in their own name without bringing any liability to the members

Question 9

Discuss 3 points “investment capital” as an advantage for a Ltd Company

Answer 9

a Ltd Company can sell shares to raise investment capital

banks are more likely to loan capital to incorporated businesses

it’s easier to get investment capital as a Ltd Company without members having to put their own assets at risk

Question 10

Discuss “professional image” as an advantage for a Ltd Company

Answer 10

incorporated companies adds credibility to the business

other larger companies are more likely to do business

Question 11

What are 7 disadvantages of a Ltd Company

Answer 11

formation - more regulated

admin - more complex tasks

accounting - higher accountancy fees

privacy - director personal information & company financials are available to public

decision speed - ability to make & implement decisions is slower

control - shareholders

money - shared

Question 12

What is the main difference between a Public Limited Company & a Private Limited Company?

Answer 12

A PLC can offer its shares for sale to the public on the stock exchange if it wants to

Question 13

What is it called when a PLC sells its shares on the stock market?

Answer 13

floating on the stock exchange

Question 14

What happens if a LTD offers its shares for sale to the public on the stock exchange?

Answer 14

If it sells £50,000 value of shares it converts to a PLC

A PLC can also become a LTD if it reduces the shares on offer to the public to below £50,000

Question 15

What is the minimum value of shares that a PLC must offer the public before it can trade?

Answer 15

£50,000 (Euro equivalent)

Question 16

What are the minimum positions needed for a PLC?

Answer 16

2 x directors (16yrs)

2 x shareholders

1 x chartered/qualified secretary

Question 17

When you setup a Public Limited Company what must you ensure you do with the name of the company?

Answer 17

you must use “Public Limited Company” or “PLC” at the end

Question 18

Can a PLC have two corporate directors without an individual director?

Answer 18

a PLC must always have one “individual” director

Question 19

What is the difference in decisions made by shareholders vs board of directors in a limited company?

Answer 19

the shareholders make decisions as owners

the board of directors make decisions as managers

Question 20

Can shareholders be other companies or do they have to be individuals?

Answer 20

shareholders can be companies

Question 21

How often must an external auditor audit a PLCs accounts & why is an external auditor needed?

Answer 21

once per year

to show the true financial position of the company to the shareholders

Question 22

How long should the copies of the accounts for a PLC be kept for?

Answer 22

six years from when they were first made

Question 23

What is the main advantage of a PLC?

Answer 23

to be able to raise capital by selling shares of the company to the public on the stock market

Question 24

What are three the main disadvantages of a PLC?

Answer 24

need a minimum of £50,000

more complexity in accounting & admin

risk of hostile takeover from competitors because PLC cannot control or buys their shares

Question 25

What’s the legal minimum age of a director

Answer 25

16yrs

Question 26

What is Companies House & why do companies need it?

Answer 26

is the Registrar of Companies

for a company to exist & to trade it must first register with Companies House

Question 27

To register a company in England and Wales which Companies House do you need to submit your application to?

Answer 27

Companies House Cardiff

Question 28

To register a company in Scotland which Companies House do you need to submit your application to?

Answer 28

Companies House Edinburgh

Question 29

To register a company in Northern Ireland which Companies House do you need to submit your application to?

Answer 29

Companies House Belfast

Question 30

Which 3 documents do you need to submit when registering a Ltd or PLC with Companies House?

Answer 30

Memorandum of Association

Articles of Association

The form IN01

Question 31

What is the Memorandum of Association?

Answer 31

names & signatures of the people forming the company

Question 32

What is the Articles of Association?

Answer 32

the details of the running of the company

the company’s rule book

Question 33

What is the form IN01?

Answer 33

application form to register the company

contains company address & director’s details

Question 34

How many days do you have to pay the standard fee when registering a company with Companies House?

Answer 34

ten days

Question 35

What is the form RR01 for?

Answer 35

to re-register an existing Ltd company as a PLC

Question 36

What is the form RR02 for?

Answer 36

to register an existing PLC as a Ltd company

Question 37

What certificate do you get after registering a company with Companies House?

Answer 37

a Certificate of Incorporation

Question 38

What is a Certificate of Incorporation?

Answer 38

it’s a legal document showing you’ve registered your limited company with Companies House

birth certificate

name of company, date of incorporate & registration number

Question 39

Which Company structures can a Certificate of Incorporation be issued to?

Answer 39

Limited Liability Partnership (LLP)

Limited Companies (Ltd)

Public Limited Company (PLC)

Question 40

Can a LLP, Ltd & PLC immediately commence trading once it has received its Certificate of Incorporation?

Answer 40

an LLP & Ltd can commence trading

a PLC must receive the “Trading Certificate” before it can commence trading

Question 41

Which pay income tax & which pay corporation tax?

Answer 41

Sole trader / Partnerships / LLPs - [Income tax + National Insurance Contributions]

Ltd/PLC - [Corporation tax on the adjusted net profit of the company]

Question 42

Limited companies pay corporation tax on what?

Answer 42

the adjusted net profit