Limited Companies

Question 1

What does LTD stand for?

Answer 1

Private Limited Company

Question 2

What does PLC stand for?

Answer 2

Public Limited Company

Question 3

Who owns limited companies?

Answer 3

The shareholders.

Question 4

Who controls limited companies?

Answer 4

The board of directors.

Question 5

Who manages limited companies?

Answer 5

The appointed managers.

Question 6

How is finance raised in limited companies?

Answer 6

Finance is raised by selling shares and borrowing from banks.

Question 7

Who does the profit go to in limited companies?

Answer 7

The profit goes to the shareholders in the form of dividends.

Question 8

What does dividends mean?

Answer 8

Dividends is the shareholders share of profits earned by an organisation.

Question 9

What are the people who invest money in a company by buying shares called?

Answer 9

Shareholders.

Question 10

What documents must a LTD and a PLC produce to set up?

Answer 10

• Memorandum of Association

- Articles of Association

Question 11

What must the documents be registered with?

Answer 11

The documents must be registered with Registrar of Companies who grants a Certificate of Incorporation, allowing the company to conduct business.

Question 12

What is a Memorandum of Association?

Answer 12

A document setting out the relationship between an organisation and the outside world. For example, the name of the company, where its address is etc.

Question 13

What is an Article of Association?

Answer 13

A document setting out the details of the internal relationships that exist within the company. For example, when company meetings will be held, how directors will be chosen etc.

Question 14

What must companies do every year?

Answer 14

• Produce a report and a set of account for the shareholders. (The annual reports and accounts must include a balance sheet, profit and loss account, a cash flow statement and a director’s report).
• Hold an Annual General Meeting (AGM) where shareholders are informed about the company’s performance during the previous financial year.

Question 15

What are the advantages of a LTD?

Answer 15

• Shareholders have limited liability.
• Specialist managers can be employed.
• Money can be raised from selling shares to family and friends.
• It is easier to expand the business.
• There is no minimum investment needed before the company can start trading.

Question 16

What are the disadvantages of a LTD?

Answer 16

• They cannot sell shares on the stock market.
• Annual reports have to be produced by law.
• Expensive administrative work is required to set up a company.
• They can only sell shares to family and friends.
• Transfer of shares must be agreed by the directors.

Question 17

What are the advantages of a PLC?

Answer 17

• Shareholders have limited liability.
• Shares can be sold to the general public through the stock exchange.
• It benefits from economies of scale.
• Specialist managers can be employed.
• It is easier to expand the company.
• It is easy to raise finance from banks.
• There is no restriction on the transfer of shares.

Question 18

What are the disadvantages of a PLC?

Answer 18

• Expensive administrative work is required to set up a company.
• Annual reports have to be produced and published by law and this is an expensive process.
• Conflict of interest can arise between managers and owners.
• Dis economies of scale because of size.
• Decision making process can be slow.
• The minimum initial shares capital of £50,000 is needed before the company can start trading.