Introduction To limited Companies

Question 1

What are the advantages of LTD status?

Answer 1

• Limited liability
• Continuation of existence regardless of who are the owners
• Making use of economy of scale
• Easier access to finance

Question 2

What are the disadvantages of LTD status?

Answer 2

• More rules and regulations that govern the reporting process of financial information
• decision making takes long time as all shareholders want to be involved in the process

Question 3

What are the 3 different types of limited companies?

Answer 3

• Private limited company (most common form)
• Public limited company (large company)
• Company limited by guarantee (educational, artistic, charities etc)

Question 4

What is the definition of private limited company in company’s act 2006?

Answer 4

A private limited company is any company that is not a public limited company

Question 5

What is the purpose of the Articles of Association?

Answer 5

• provides the constitution of the company
• regulates the company’s affair to the outside world
• sets the rules of running the company

Question 6

What is the authorised share capital?

Answer 6

It is the maximum share capital that the company is allowed to issue

Question 7

Which is included in the total of the statement of financial position Authorised share capital or issued share capital?

Answer 7

Issued share capital

Question 8

What are the two types of shares?

Answer 8

Ordinary shares and preference shares

Question 9

Which shares carry the main risks and rewards?

Answer 9

Ordinary shares carry the main risks and rewards of the business; the risks are losing part or all the value of shares and rewards are taking a share of the profits “dividend”

Question 10

At what price can shares be issued?

Answer 10

At par value which is the nominal value
Or
Above the par value
The difference between the two is the share premium

Question 11

Which of These shares carry the right to vote :

a) Ordinary shares
b) Preference shares

Answer 11

Ordinary shares usually carry voting rights i.e. The shareholders have a say at all meetings

Question 12

In the event of insolvency which shareholders will be paid first?

a) ordinary shareholders
b) preference shareholders

Answer 12

Preference shareholders receive repayment of capital before ordinary shareholders

Question 13

Explain how dividends are paid in time of large profit and of losses for both

a) Preference shareholders
b) Ordinary shareholders

Answer 13

a) Preference shareholders receive a fixed percentage of the profit and they receive no dividend if instead of profit losses incur
b) ordinary shareholders receive larger dividends if profits are large and when losses are made they may not receive dividends.

Question 14

What are capital reserves?

Answer 14

Capital reserves are profit resulting from non trading activities and cannot pay dividend
E.g. Revaluation surplus
Share premium

Question 15

What are Revenue reserves? Also called general reserve

Answer 15

Revenue reserves are profits resulting from trading activities and can be used to fund dividends
E.g. Balance of retained earnings

Question 16

Who is a shareholder in a company?

Answer 16

A person who owns at least one share in the company, a shareholder is also a member of the company.

Question 17

What are the two different types of accounts of a ltd company ?

Answer 17

• statutory accounts , by law these have to be published in the registrar of companies
• annual report and accounts for the shareholders use