Limited Companies AS

An organisation owned by shareholders

• Limited company

• Sole Trader

• Partnership

• Manufacturer

What are shareholders?

Answer explanation

They own shares (a part of) the limited company

_______ limited companies can sell shares to the public in stock exchange

• Public

• Private

Answer explanation

*Stock exchange is a centralised 'market' to buy and sell shares

Private limited companies can only sell shares to specified investors

Advantages of limited companies:

Answer explanation

• -limited liability (personal assets not at risk)

• -lower tax on dividends as compared to income tax (eg: tax on salaries)

• - easier to raise finance

• - more customers (esp those who are not willing to deal with sole traders or partnerships)

Diadvantages of limited companies:

Answer explanation

-difficult and expensive to set up

-complex financial statements (time consuming and expensive)

-limited companies are audited

-decision making is not efficient

__________ of Association defines the existance of the company and regulates the structure and control of the company and its members

• Memorandum

• Articles

Answer explanation

basically all of the technical details of the company (like how it is run, how it is financed, etc)

___________ of Association defines the relationship of the company to the rest of the world

• Memorandum

• Articles

Answer explanation

Basically just the name and the identity of the company

Limited companies are only financed by the issue of shares

• True

• False

Answer explanation

Aside from issuing shares (basically raising capital), the company can also obtain debentures (basically a loan)

Debenture holders can vote in the annual general meeting

• True

• False

Answer explanation

The annual general meeting is a big meeting with all the ORDINARY SHAREHOLDERS to discuss important things about the business.

Debenture holders are irrelevant here as they are only lending money to the business and not investing in it

Select which statements are correct

• Shareholders receive dividends first

• Debenture holders receive interest first

• Debenture holders receive dividends first

• Interest on debentures is an expense (shown in SOPL)

• Share capital is an asset (under Non Current Asset in SOFP)