Introduction to the Unit –Recap I2 Flashcards
What is a limited company
A limited company is a corporate structure where the business is legally separate from its owners
What are the two main types of limited companies in the UK
The two main types of limited companies in the UK are:
- Private Limited Company (Ltd)
- Public Limited Company (PLC)
What are the key features of limited companies
Key features of limited companies are:
- Separate legal entity
- Limited Liability
- Infinite life
- Increased regulation
- Higher costs
What does a limited company being a separate legal entity mean
A limited company being a separate legal entity means it’s legally distinct from it’s owners and managers
What does a limited company being a distinct from its owners and managers mean
A limited company being distinct from its owners and managers means that:
- It can own property, enter contracts, sue or be sued
- The company continues to exist even if the shareholders or directors change
- Debt and liabilities belong to the company not the shareholders
What does limited liability mean
Limited liability means:
- Shareholders are only personally liable for the business debts up to the amount they invested in shares
- Personal assets of shareholders are protected if the company goes bankrupt
When may directors be held personally liable
Directors may be held personally liable if they engage in:
- Fraudulent trading
- Wrongful trading
What is fraudulent trading
Fraudulent trading is knowingly operating while insolvent
What is wrongful trading
Wrongful trading is continuing business when there is no chance in avoiding insolvency
What does infinite life for a business mean
Infinite life for a business means:
- It isn’t dependent on the life of its owners or directors
- Shares can be transferred, and ownership can change without affecting the companies legal status
- The company only ceases to exist if it’s formally dissolved
What is the increased regulation on limited companies
The increased regulation on limited companies is:
- Company formation and governance
- Financial reporting requirements
- Compliance with UK corporate governance code (for PLCs)
What are the regulations for company formation and governence
Regulations for company formation and governance are:
- Must be registered with company house
- Must have at least 1 director (1 for PLCs)
- PLCs must have a company secretary
What are the financial reporting requirements for limited companies
Financial reporting requirements for limited companies are:
- Annual financial statements must be filed and reported with companies house
- PLCs and large private companies must have there finances audited by an external firm
- Corporation tax
What does compliance with UK corporate governance code require
Compliance with UK corporate governance code requires separation of management and shareholders to protect shareholders
What does compliance with UK corporate governance code encourage
Compliance with UK corporate governance code encourages transparency, accountability, and ethical decision making
What can failure to comply with regulations for a limited company result in
Failure to comply with regulations for a limited company can result in fines, legal action, or company dissolution
What are the higher costs associated with the running of a limited company
The higher costs associated with the running of a limited company are:
- Administrative costs
- Accounting and auditing fees
- Legal and compliance costs
What are the registration fees
A company must register with companies house which is £12 online or £40 by post
What is an annual conformation statement
An annual conformation statement is a mandatory file to update company records
What may directors require to protect them from legal claims
Directors may require directors and officers insurance to protect against legal claims
