Limited Companies Flashcards
What are the two types of limited companies
Private(LTD)
Public(PLC)
What is a limited company
The company raises their own finance and any debt which is run belongs to the company not the individuals. They are owned by shareholders. If the company goes to debt the shareholders simply lose the money they invested.
What are the documents that are needed to form a limited company in the UK
The memorandum of association
The articles of association
What is a private limited company
The shares are only sold to friends and family. There are 2 -250 shareholders with limited liability and incorporated legal structure.
What are the advantages of operating as a LTD
-raising capital: an LTD can raise more money than a partnership or sole trader. They are larger than sole traders or partnerships and are regarded less risky by the back which allows them to get easier loans.
-continuity: because they have a separate legal existence it wont be affected is one shareholder leaves, retires or dies.
-control: they have fewer shareholders than PL, this means that each shareholder has more control over the business than in PLC
-limited liability
Disadvantages of operating as a LTD
-sharing profit: the exact amount of the profits they receive will depend on the proportion of the company’s shares they own
-lack of privacy: LTD companies in the UK are required to make certain aspects of their affairs available to the public for general inspection. This may give competitors insights into running the business
-set up costs: setting up a LTD an be time consuming and costly
-limited on capital: they aren’t allowed to sell their shares publicly, this means that it,s more difficult for them o raise the capital required to finance growth and expansion
What are dividends
The amount of profit set aside by a limited company to be shared out amongst shareholders as a reward for investing in their company
Whats included in the memorandum of association
Name of shareholders
Address
Objectives
Amount of capital to be raised
Number of shares to be issued
Whats included in the aricles of association
Rights of shareholders
Procedures for appointing directors
Time directors should serve before re election
Company meeting schedules
Arrangement for auditioning company accounts
What is a public limited company
An incorporated business. Offers its shares for sale to the general public through recognized stock exchange
Advantages
-raising capital: they can issue their shares for sale to the general public and therefore raise more capital than any for of business
-continuity: shares in a PLC change hands regularly with very limited impact on the operation of the business
-specialization: PLC has a number of directors or managers, this means that each manager can specialize in an area where they are best suited which makes the company more efdecint and productive
-limited liability
Disadvantages
-set up costs: time consuming and costly as there are a lot of procedures
-divorce of ownership and control: the shareholders are the owners of the company but it’s the directors and managers who make the decisions and therefore it is they who control the company. This can cause difficulties of the objectives between those who control the company and those who own it.
-threat of takeover: as shares are offered on a stock market, other firms may attempt to buy these shares and therefore gain control of the company. If this occurs against the wishes of the current board of directors it is known as a hostile takeover bid.
-less privacy
