Lesson 4- Limited companies and multinationals Flashcards
Define limited companies
They are incorporated businesses which means that they have a separate legal identity between firms and owners
What are the features of a limited companies? (5)
1.Limited liability
2. Raise capital by selling shares
3. Directors are elected by shareholders in the AGM
4.These firms pay corporations tax
4.There are legal formalities when forming a company
What are the two basic documents required when setting up a limited company?
Memorandum of association
Articles of association
What is the memorandum of association and what does it consist? (5)
It sets out the constitution about the company such as:
1.Name of the company
2.Name and address of the company’s registered office
3. Objective of the company
4.Amount of shares that can be sold
5. Amount of capital that can be raised
What is the article of association and what does it consist?
It deals with the internal rules and regulations of the organization. Such as:
- Frequency of conducting meetings
- Procedures for appointing directors
- Rights of the directors
What is the document needed for a business to enable them to start trading?
Certificate of incorporation
What are the two types of companies and what are their abrevations?
- Private Limited companies (LTD/Limited)
- Public limited companies (PLC)
Define a private limited company
They are private sector organizations that raise funds by selling shares of the firm to members of family and friends.
What are the advantages of a Private limited companies? (6)
- Limited liability
- More capital can be raised
- Risk of loosing control is less
- Ability to grow is more
- Will continue to exist even after the death of a shareholder
- More status
Disadvantages of a private limited company (5)
- Costly and time consuming
- Can not have close relationships with customers
- Profit has to be shared
- Amount of capital that can be raised is limited
- Financial information has to be published to the public
Define public limited companies
They are companies that can sell shares to any person of the general public and can obtain large sums of money from banks
Requirements to form a PLC
1.Have to publish a prospectus
2. Minimum share capital of $50,000
Advantages of PLC (5)
- Limited liability
- More capital can be raised
- Company will continue to exist even after the death of a shareholder
- Can achieve economies of scale
- Can monopolies the marker
Disadvantages of PLC (3)
1.Dilution of ownership
2. Diseconomies of scale
3. Setting up cost is high
Define a multinational company
Large businesses with significant production or service operations in at least two different countries
Features of a multinational company (7)
- Huge assets
- Highly qualified and experiences professional executives and managers
- Powerful advertising and marketing capability
- Highly advanced and up to date technology
- Highly influential both economically and politically
- Very efficient since they can exploit economies of scale
- Ownership and control is centered in the host country
