CHAPTER 4 - Limited companies and Multinationals

Question 1

FEATURES OF LIMITED COMPANIES

Answer 1

• the owners have limited liability
• the business raises capital by selling sales
• the shareholders elect directors to run the company
• whereas sole traders and partnerships pay income tax, companies pay corporation taw on profits
• to form a limited company it is necessary to follow a legal procedure

Question 2

FORMING LIMITED COMPANIES

Answer 2

• a limited company must have a minimum of two members
• important documents must be sent to the Register of Companies ( most important documents: memorandum of association and articles of association

Question 3

FEATURES OF PRIVATE LIMITED COMPANIES

Answer 3

• their business name ends in limited or Ltd
• shares can only be transferred ‘privately ’ ( from one individual to another )
• shares in private limited companies cannot be traded on the stock market
• they are often family businesses owned by family members or close friends
• the directors of these firms tend to be shareholders and are involved in the running of the business

Question 4

Advantages of private limited companies

Answer 4

• shareholders have limited liability
• more capital can be raised
• control cannot be lost to outsiders
• business continues if a shareholder dies
• has more status ( for example, than a sole trader )

Question 5

Disadvantages of private limited companies

Answer 5

• financial information has to be made public
• costs money and takes time to set up
• profits are shared between more members
• takes time to transfer shares to new owner
• cannot raise huge amounts of money, like PLCs

Question 6

FEATURES OF PUBLIC LIMITED COMPANIES

Answer 6

• larger than private limited companies
• shares can be bought and sold by the public on the stock exchange
• any person or organisation can buy shares in a PLC

Question 7

Advantages of public limited companies

Answer 7

• large amounts of capital can be raised
• shareholders have limited liability
• may be able to dominate the market
• shares can be bought and sold very easily

Question 8

Disadvantages of public limited companies

Answer 8

• setting up costs can be very expensive
• more regulatory control owing to company acts
• managers may take control rather owners
• outsiders can take control by buying shares

Question 9

FEATURES OF MULTINATIONALS

Answer 9

• huge assets ( land, buildings, plant, machinery and money ) and turnover
• highly qualified and experienced professional executives and managers
• powerful advertising and marketing capability
• highly advanced and up - to - date technology
• highly influential since they can exploit huge economies of scale
• ownership and control is centered in the host country