Private Limited Companies

Question 1

Who owns private limited companies? (LTD’s)

Answer 1

shareholders

Question 2

Who controls LTD’s?

Answer 2

A board of Directors (appointed by the shareholders)

Question 3

What are three ways that LTD’s gain finance?

Answer 3

-inviting a new shareholder to join
-bank loans
-bank overdrafts
-government grants

Question 4

What kind of liability do LTD’s have?

Answer 4

Limited

Question 5

What does it mean to have limited liability?

Answer 5

That the owners’ personal possessions are not at risk. Should the business be in debt the owners only lose their initial investment.

Question 6

What are the advantages of LTD’s?

Answer 6

-Shareholders have limited liability (see card 5 for definition)
-Shareholders keep control of the business (control is not lost to outsiders)
-Can raise more finance when compared to sole traders/partnerships (FLIP of negative)
-Expertise can be gained from an experienced board of directors
-Privacy can be maintained as there is no obligation to publish an annual report

Question 7

What are the disadvantages to LTD’s

Answer 7

-Profits have to be split between many shareholders by dividends
-Complicated legal process is required to set up the company (AoA, MoA)
-Limited source of finance as shared are not sold to the public (in PLC’s)
-Cost a lot more to set up compared to sole traders (FLIP to the positive)