Understanding Different Business Forms Flashcards
Define public sector companies
Public sector companies are companies owned and controlled by the government-they are funded by central and local governments as well as operated by public bodies they may still very charges for certain services
Define limited liability
Owners can lose the value of their original investment but are not responsible for debts of the business.The business may be declared bankrupt but owners cannot lose personal possessions
What are the factors of limited companies?
Need to become incorporated to become a company rather than a business
Memorandum and articles of association required
Need to register at companies house
Describe limited companies
-owned by shareholders
-run by the board of directors
-have a separate legal identity
-shareholders have limited liability
-have to keep up to date accounts
What is a share?
A percentage of the business
How do shareholders benefit from buying shares ?
Dividends-paid from the businesses profits
Increase ownership
Profit-> share value
How can limited companies raise finance ?
New shares created and sold to either the existing owners or people outside the business
Buying new shares gives them part ownership and entitlement to a share if the profits but the money can be used for growing the business
No need for interest payments or business plans to obtain this finance -relatively quick and easy
What are the issues of selling shares ?
Reduced control in business
Risk of takeover
Make less profit
Describe a private limited company
Smaller than plcs and cheaper to set up
£15 to register an ltd with companies house
Have limited liability
Can issue and sell shares to raise finance
Sales of shares have to be agreed by other directors
Examples of ltds
Ltds are often small companies but can grow to be quite large eg JCB Virgin
Benefits of being an ltd
Limited liability
Better brand reputation
More respected
Less chance of takeover
People who invest care about the company
Fewer shareholders fewer to spread profits between
Drawbacks of being an ltd
More difficult to sell shares smaller pool of people
Takes a while to set up
Disagreement from shareholders over people wanting to purchase shares makes raising finance more difficult
Describe a public limited company
Larger than an Ltd
Measure by market capitalisation-total value of issued shares
Can issue and sell shared but plcs can do on stock market=flotation occurs
Can advertise and do not need approval to from other directors
Plcs share prices are in the papers and ltds aren’t
What are the benefits of being a PLLC?
Limited liability
Ability to issue and sell new shares to raise finance
More wide variety of shareholders
To raise finance – stock market
Make it easier to buy out other companies
What are the disadvantages of being a plc?
More shareholder so more profit shared
Possibility of takeover
Loss of control
Define market capitalisation
The value of a company that’s traded on the stock market kit calculated by multiplying total number of shares by share price
Why do many private limited companies change to be public limited companies?
They can sell more easily and easier to buy out other companies
Why did some PLCs change back to be LTDs?
You can now know who buys the shares and you can manage control also you can prevent hostel takeover. An example of this is virgin which change from a plc to an LT.D
Who buys shares?
In the UK, individuals own less than 15% of shares
Foreign investors own more than 50% with shares in UK
As well as UK individuals banks pension funds insurance companies
What are the benefits of buying shares?
Receive a share of profits via dividends
Increase in share price will increase value owned
What are the risks of buying shares?
Share prices can fall for a variety of reasons
Low profits equals low dividends
What happens in a recession?
Demand for goods and services for resulting in low sales revenue and therefore lower profits mean and share prices for and the business is likely to reduce their dividend payments or even pay no dividends
Demand for shares fallen supply shares increase causing share price to fall even further
This can also cause shareholders to sell shares
What are ordinary shares?
Most ideas and they are most risky as you only are paid after those who lent money are paid back
What is the role of shareholders?
Can influence decision-making as one share equals one vote buying more shares equals more votes if you earn 51% then you control the business
All companies must have an AGM shareholders are invited in every shareholder must receive a copy of the companies annual report that reviews performance
At the AGM, the directors managers given overview and respond to questions
Shareholders may not have a strong influence on policies often about things such as pay increase and bonuses for senior managers
What are the influences on share prices?
Companies performance
Business environment in which it trades in
The above two of the major influences on demand and supply of shares
Financial results and trading performance updates are provided twice a year
Information that could influence share prices have to be declared to shareholders these are called regulatory announcement
What are the reasons for share prices going up?
Stock market at all-time high
Rumours of takeover
Increasing interest rates
What are the reasons for share prices going down?
Government introducing new taxes
Large scale products recall
Rising unemployment and recession
What happens when share prices rise?
Management receive bonuses
Easier to share capital
Banks willing to offer loans
What happens when share prices fall?
Difficulty to raise capital
Vulnerability to take over
Pressure on management
What are the effects of Mission statement, on a sole trader?
Maybe unlikely to have a mission statement but sole owner provide sense of direction
Are the effects of objectives on sole traders?
May centre run meeting personal goals such as generating sufficient income
What are the decisions made by sole traders like?
Potentially rapid and responsive but lacking support and possibly information
What are the effects of performance on SOLE traders?
Ownership allows businesses to be responsive to customers needs but may not be too price competitive
What are the effects of mission objectives decisions and performance on a private limited company
Mission May Centre on maintaining family run business or reputation
Objectives -Could relate to satisfactory level of profits or financial stability i to ensure continued survival
Decisions – more complex is more people likely to be involved. May have more information available and some specialist input.
Performance – scale of this type of business varies hugely performance could be based on meeting personal needs or on benefits of being large scale
What are the effects of mission objectives decisions and performance on public limited companies?
Mission – mission can play an important role to project the companies image to provide a focus for consistent decision-making
Objective – likely to relate to cost prices business and market share linked to financial performance in the long term
Decisions – can be very complex and have long-term implications. Some decisions require specialist input needs to be based on extensive information. Many routine decisions also needs to be made
Performance – access to capital and pressure from shareholders likely to place emphasis on being competitive in terms of price customer service or desirable product
What are the effects of mission objective decisions and performance on not for profits?
Mission mission can be important in establishing the ethos of the business and underpinning all decision-making
Objectives – likely to be non-financial and can be less easy to measure such as benefit in the community or protecting the environment
Decisions – may lack specialist social objectives may cloud judgement
Performance – probably measured in non-financial terms but need to perform well enough to financially to meet other goals
