Equity In Limited Companies

Question 1

Characteristics of a private limited company

Answer 1

• Ltds are prohibited from offering its shares to the public
• Ltds have 9 months to submit their accounts to shareholders
  Ltds need a minimum of 1 directors of a company
• Do not need a secretary

Question 2

Characteristics of a public limited company

Answer 2

• Plcs need at least 2 directors
• Plcs can offer shares to the public
• Must submit their account within 6 months of year end
• Plcs need at least £50,000 issues share capital
• Must have one qualified secretary

Question 3

Components of equity in limited companies

Answer 3

Ordinary share capital

Share premium
- Share premium refers to the amount of money a company receives from shareholders when they buy shares at a price higher than the share’s nominal value.

Retained earnings
- Calculation = balance at the beginning of the year + profit of the year - dividend payment to shareholders

General capital reserves
- companies can choose to move their retained earnings to a separate capital reserve account

Question 4

What makes up long term finance

Answer 4

• share issues - equity
• retained earnings - equity
• long-term borrowing e.g. pref. shares - debt

Question 5

A general partnership

Answer 5

The owners are not seen as legally separate from the business