Limited Companies

Question 1

Explain the difference between a private and public limited company.

Answer 1

A private limited company sells shares privately to invited members. A public limited company sells shares to the public and many are listed on the stock market.

Question 1

Describe the main features of a limited company.

Answer 1

Main Features

Companies are owned by shareholders and run by directors.
Limited companies have limited liability, meaning an investor only loses the initial stake (their share capital) if a company goes out of business.
Profits are only shared between shareholders, which they receive in the form of a dividend.
Limited companies are able to raise money by borrowing and through the share issue of ordinary shares.

Question 2

State the advantages of being a limited company business.

Answer 2

Advantages of being a company:

• Limited liability means that If the company fails, the investors in a limited company are protected, so that they only lose their original investment (the share capital).
• Companies are not personally liable for the debts of the business, so are not at risk of having to sell personal assets in the way that sole traders and partnerships may have to.
• Limited companies are able to raise more money than sole traders or partnerships money by borrowing through the share issue of ordinary shares.
• Larger limited companies are often able to raise larger amounts of finance through borrowing.

Question 3

State the disadvantages of being a limited company.

Answer 3

Disadvantages of being a company:

• Shareholders own a Plc but directors control it. This means that directors may make decisions that the shareholders disagree with.
• By allowing the public to buy shares of the company, there is always the threat that someone will buy enough shares to take over the whole company.
• Shareholders generally want to make as much profit as possible so it can be difficult to pursue other objectives, such as providing a quality service or acting ethically.