Limited Companies and Multinationals Flashcards

Limited Companies and Multinationals

Objectives

  • Understand how a limited company is formed.
  • Understand the features of Private Limited Companies (Ltd).
  • Understand the features of Public Limited Companies (PLC).
  • Understand the features of Multinationals.
  • Understand the advantages and disadvantages of operating as a Ltd and a PLC.
  • Understand the ownership, control, sources of finance, and use of profits for Ltd companies.

Limited Companies

  • Limited companies are incorporated, meaning they have a separate legal identity from their owners.
  • They can own resources, form contracts, employ people, sue and be sued.
  • Key feature: limited liability.
  • Raise capital by selling shares.
    • Shareholders are owners of the company.
    • Shareholders vote on important matters.
    • Shareholders receive a dividend paid from profits.
  • Shareholders elect directors to run the company, headed by a chairperson.
    • Directors are accountable to shareholders.
  • Forming a limited company requires following a legal procedure.

Forming a Limited Company

  • Requires a minimum of 2 members.
  • Need a Memorandum of Association and Articles of Association.
    • Must be sent to the Registrar of Companies to form a limited company.
  • If documents are acceptable, the company receives a Certificate of Incorporation.
  • Shareholders have a legal right to attend the AGM (Annual General Meeting) and must be informed of the date and venue in writing.

Memorandum of Association

  • Sets out the constitution and provides details about the company.
  • Must include the following details:
    • Name of the company.
    • Name and address of the company's registered office.
    • Objectives of the company and the nature of its activities.
    • Amount of capital to be raised and the number of shares to be issued.

Articles of Association

  • Deals with the internal running of the company.
  • Includes details such as:
    • Rights of 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 Company (Ltd)

  • A legal entity in its own right.
    • Can be sued and can sue.
  • Shareholders own the business.
    • A group of between 2 and 50 people who buy shares are called the shareholders.
  • Cannot sell shares to the public.
  • Tend to be medium to small in size.
  • Often family-owned businesses.
  • Directors tend to be shareholders and involved in running the business.

Public Limited Company (PLC)

  • Can sell their shares to members of the public through the stock exchange.
  • Must have at least 7 shareholders with no maximum limit.
  • Must issue a prospectus detailing the history of the company and inviting the public to buy shares.
  • Shares are bought and sold on the stock exchange.
  • Accounts must be published and audited on an annual basis.
  • An annual report must also be compiled each year.

'Going Public'

  • Can be expensive.
  • Need lawyers to ensure the prospectus is legally correct.
  • Prospectus has to be printed and circulated.
  • A bank may be paid to process the share applications.
  • Company must insure against some shares not being sold – a fee is paid to an ‘underwriter’ who will purchase any unsold shares.
  • Advertising and administration costs.
  • A PLC must have a minimum of £50,000 share capital.

Advantages of a Public Limited Company

  • Limited liability.
  • Easier than a private limited company to raise capital.
  • Attract top management because of public image.
  • Continuity of existence.
  • Lots of publicity based on stock exchange quotations.

Disadvantages of a Public Limited Company

  • High formation costs.
  • Accounts have to be published.
  • Profits must be distributed to shareholders.
  • Ownership and control are separated because, although the shareholders own the company, the Board of Directors makes the decisions.

LTDs & PLCs: Differences & Similarities

  • Name:
    • LTD: Private
    • PLC: Public
  • Shares Issued:
    • LTD: Private (friends & family)
    • PLC: Public (Stock Exchange)
  • Accounts:
    • LTD: Available to authorities
    • PLC: Available to anyone
  • Size:
    • LTD: Usually small
    • PLC: Usually large
  • Sector:
    • LTD: Private
    • PLC: Private
  • No. of Owners:
    • LTD: Minimum of 2
    • PLC: Minimum of 7
  • Profits go to:
    • LTD: Shareholders
    • PLC: Shareholders
  • Major difference is the use of the stock exchange.

Feature of Multinationals

  • A large business with significant production or service operations in two or more countries.
  • Key features include:
    • Huge Assets
    • Highly qualified and experienced professional executives and managers
    • Powerful advertising and marketing capability
    • Highly advanced and up-to-date technology
    • Highly influential both economically and politically
    • Very efficient – can exploit economies of scale
    • Ownership and control are centred in the host country.