1.2b - Limited Companies

Question 1

Who are the owners of limited companies?

Answer 1

The shareholders

Question 2

Limited companies are separate legal entities to the founders - what does this mean?

Answer 2

They have limited liability

Question 3

Who can Private Limited Companies (LTD) sell shares to?

Answer 3

Family members and acquaintances

Question 4

Who can Public Limited Companies (PLC) sell shares to?

Answer 4

Anybody

Question 5

What documents need to be drawn up before a company can start trading?

Answer 5

• Memorandum of association

- Articles of association

Question 6

Advantage of being a LTD:

Answer 6

• Limited liability (personal wealth of shareholders protected)
• Can pay less tax (corporation tax rather than income tax)
• More privacy than PLC (don’t have to publish financial records)

Question 7

Disadvantages of being a LTD:

Answer 7

• Greater admin costs than a sole trader
• Any shareholders have to be paid a dividend
• Can only sell shares to a certain group of people

Question 8

What are the requirements to become a PLC?

Answer 8

• Share capital of over £50,000 raised when selling shares

- At least two shareholders, two directors and a secretary

Question 9

Advantages of being a PLC:

Answer 9

• Limited liability
• Easier to raise finance from stock exchange
• Greater scope for new investment
• Suppliers are more willing to offer credit to PLC’s

Question 10

Disadvantage of being a PLC:

Answer 10

• Financial information has to be published
• Greater scrutiny of activities
• Admin expenses
• Could lose control if shareholders buy 50% of shares
• Pressure from shareholders

Question 11

How can a PLC become an LTD?

Answer 11

• They are taken over by a LTD

- Managers buy out the shareholders

Question 12

Advantages of switching from LTD to PLC:

Answer 12

• Larger pool of potential owners and capital
• Raise money more easily
• Higher profile - in the public eye

Question 13

Disadvantages of switching from LTD to PLC:

Answer 13

• Answerable to shareholders and their interests
• PLC shareholders tend to be in it for short-term profits
• More exposed to scrutiny of activites

Question 14

Advantages of switching from PLC to LTD:

Answer 14

• More privacy
• No pressure of varying share prices
• Regain control of business

Question 15

Disadvantages of switching from PLC to LTD:

Answer 15

• Long and expensive process of buying out all shareholders

- Harder to raise finance