Week 5 - Equity in Limited Comapnies

Question 1

Explain the Difference concerning Share Capital Between PLC and LTD

Answer 1

PLC - Offer Shares to Public -> may be Listed on Stock Exchange
LTD - Prohibited from Offering its Shares to the Public
if Shares are to be Transferred, All Shareholders Must be Consulted

Question 2

What are 4 Advantages of Being a PLC

Answer 2

• Easier Access to Capital
• Much More possible to Assess Value of the Company (Market Capitalisation
• Easier to Make Acquisitions
• Possibly Gives Company a More Prestigious Profile

Question 3

What are the 4 times of Equity in Limited Companies?

Answer 3

• Ordinary Share Capital
• Share Premium
• Retained EARNINGS
• General Capital Reserves

Question 4

Explain the Equity - ORDINARY SHARE CAPITAL

Answer 4

• Capital Invested in a Company By its Owners
• Treated as Equity in the SOFP
• Larger your Ordinary Shareholding, the More Control you Have over Company
• > 50% = Majority Shareholder

Question 5

Explain the Equity - SHARE PREMIUM ACCOUNT

Answer 5

• Treated as Equity in SOFP
• All Ordinary Shares have the Same Nominal Value (Face Value) , Determined by the Company Consitution
• But a Company can Sell Issued Shares for Higher Price Than the Nominal Value
• Any Amounts Received In Addition to the Nominal Value of Shares Goes to the SPA

Question 6

Explain the Equity - GENERAL CAPITAL RESERVERS

Answer 6

• Company can Choose to Move their Retained Earnings (Revenue Reserves) Into a Seperate Capital Reserve Account
• Means Reserves are No Longer Available to Pay Dividends to Shareholders
• Capital Reserves could be Used for Further Investments, or to Save as a ‘Buffer Zone’ for Future Years

Question 7

Explain the Equity - RETAINED EARNINGS

Answer 7

RE = Revenues - Expenses - Dividends
- Amount of a Business’ Net Income that’s Kept Within its Accounts, Rather than Paid Out to Shareholders
- Accumulation of Profit Of the Year

Question 8

What’s 3 Sources of Long-Term Finance?

Answer 8

Equity :
- Share Issues
- Retained Earnings
Debt :
- Long-term borrowings e.g. pref, shares, loans

Question 9

Explain the Difference between PLC’s and LTD in terms of How Long to Submit Accounts and Number of Directors

Answer 9

PLC - submit within 6 Months of their year end
LTD - 9 Months

PLC - at Least 2 Directors
LTD - minimum 1