7. Types of commercial enterprises: Limited Companies Flashcards
What are limited companies?
They are incorporated. To form a limited company it is necessary to follow an official procedure. Two official documents are needed to set up a limited company.
Capital is raised by issuing shares. Profit is given as dividends.
They are owned by shareholders but are run by directors.
Owners have limited liability
Describe the process of forming a limited company
Must have a minimum of two members but has no upper limit. A number of documents must be sent to the registrar of companies. The two most important documents are
Memorandum of associatiion
articles of association
If the documents are accepted the company will receive a certificate of incorporation.
What is the memorandum of association?
sets the constitution of the company. Has the following details:
Name of company
Name and address of the company’s registered office
Objectives of company
amount of capital to be raised and number of shares to be issued.
What is the article of association?
sets the internal running of the company Has the following details:
rights of shareholders
procedure for appointing directors
length of time directors should serve before re-election
timing and frequency of company meetings
arrangments of auditing company accounts
What are the features of a private limited company?
Shares can only be transferred privately
Often family-owned businesses
directors often are shareholders and are involved in the running of the business.
What are the advantages of a private limited company?
Shareholders have limited liability
More capital can be raised
Cannot lose control to outsiders
The business continues if a shareholder dies
Has more status
What are the disadvantages of a private limited company?
Financial information has to be published
costs money and time to set up
profits are shared between members
takes time to transfer shares to a new owner
Cannot raise huge amounts of money like public limited companies.
What are the features of a public limited company?
Larger than private limited companies. shares can be bought and sold by the public on the stock market. A prospectus is published by the business.
What are the advantages of a public limited company?
Large amounts of capital can be raised
Shareholders have limited liability
Can exploit economies of scale
May be able to dominate the market
Shares can be bought and sold very easily
May have a high profile in the media
What are the disadvantages of a public limited company?
Setting up costs is expensive
Outsiders can take control
More financial information has to be made public
Maybe more remote from customers
Face more regulatory control owing to company acts
Managers may take control rather than owners.
