Unit 1 - Business Activity and Influences on Business (Limited Companies and Multinationals) Flashcards
Features of Limited Companies
Incorporated - separate legal identities to owners, own resources, employ people, sue and be sued.
Main features of Limited Companies
Owners have limited liability - owners can only lose the money they originally invested and cannot be forced to pay debts of the business.
Raises capital by selling shares - shareholders are joint owners of the company and are entitled to vote on important matters and get paid dividends from the business.
Shareholders can elect directors to run the company - chairperson is accountable and should run the company as shareholders wish, and can be voted out at the AGM.
Companies pay Corporation Tax on Profits.
To form Ltd company it is necessary to follow legal procedure.
Forming a Ltd Company
- Must have minimum of 2 members - no upper limit.
- Some important documents need to be sent to the Registrar of Companies before it can be formed.
- Two most important documents are Memorandum of Association and Articles of Association - a certificate of incorporation will then issued to allow it to trade as Ltd Company.
- Shareholders have a legal right to attend the AGM (Annual General Meeting) which must be advertised.
Memorandum of Association
Sets out the Constitution and gives details of the company and must include:
- Name of the Company
- Name and Address of the Company’s registered office
- Objectives of the company and nature of its activities
- Amount of capital to be raised
- Amount of shares to be issued
Articles of Association
Deals with internal running of the company and includes:
- Rights of the shareholders depending on the type of share they hold
- Procedures for appointing Directors
- Length of time Directors should serve before re-election
- Timing and Frequency of company meetings
- Arrangements for auditing company accounts
Private Limited Companies
Tend to be small or medium-sized. Features:
- Business name ends in Limited or Ltd
- Shares can only be transferred privately (from one individual to another) - all shareholders must agree on the transfer and they cannot be advertised for sale. Shares cannot be traded on the stock market
- Often family businesses
- Directors tend to be shareholders and are involved in running of the business
Advantages of Private Limited Companies
- Shareholders have Limited Liability
- More capital can be raised
- Control cannot be lost to outsiders
- Business continues if shareholder dies
- Has more status
Disadvantages of Private Companies
- Financial information has to be made public
- Costs money and takes time to set-up
- Profits are shared between more members
- Takes time to transfer shares to new owner
- Cannot raise huge amounts of money like PLC (Public Limited Companies)
Public Limited Companies
Tend to be larger than Private Limited Companies. Shares are bought and sold by the public on the Stock Exchange. Any person or organisation can buy shares in a PLC. Going public can be expensive:
- Lawyers needed to make sure prospectus is legally correct.
- Prospectus has to be printed and circulated
- A bank may be paid to process share applications
- The company must insure against the possibility of some shares remaining unsold therefore a fee is paid to an underwriter who must buy unsold shares
- Advertising and administrative expenses
- PLC must have a minimum of 50,000 GBP share capital
Prospectus
Document produced by a company that wants the public to buy its shares
Advantages of PLCs
- Large amounts of capital can be raised
- Shareholders have limited liability
- PLC’s can exploit economies of scale
- May be able to dominate the market
- Shares can be bought and sold easily
- May have high media profile
Disadvantages of PLCs
- Setting up costs can be very expensive
- Outsiders can take control by buying shares
- More financial information has to be public
- May be more remote from customers
- More regulatory control owing to the Company Act
- Managers may take control rather owners
Features of Multinationals
Large business with significant production or service operations in at least two different countries. Key features include:
- Huge assets and turnover: extremely well resourced and can afford to take on large scale contracts and projects
- Highly qualified and experienced professional executives and managers: can afford to hire the very best people in the world
- Powerful advertising and marketing capability: can invest huge amounts of money in advertising campaigns to out compete smaller rivals
- Highly advanced and up-to-date technoloy: can afford to keep up to date with technology improvements so they always have most efficient factories, machinery and equipment to help lower costs
- High influential both economically and politically: very powerful and can influence government decision making
- Very efficient since they can exploit huge economies of scale: because they are so large they have the ability to reduce their costs significantly - can buy huge amounts of raw materials more cheaply
- Ownership and control is centred in the host country: nearly always held in the country where the company was first established meaning profits are always returned to this country
