Shares can only be transferred of all shareholders agree, they cannot be sold to the public. This means the owners have direct control over the business. As the owners have limited liability they will never lose more that they have invested. Banks are more willing to lend money too limited company. The accounts are still private between the owners. Their accountants and the Inland Revenue. Drawbacks for the Owners Shares cannot be sold to the general public to raise additional capital. Limited companies have to comply with more regulations that sole traders or partnerships.
A emitted company Is not allowed to trade under the name of an existing company If this will cause confusion for customers and suppliers. If the company ceases trading it must officially be Wound up’. There are two legal documents that have to be completed in order to form a limited company: The Memorandum of Association – this gives details about: The name of the company The address of the registered office A statement that the shareholders will have limited liability The type and amount of share capital A description of the business activities The Articles of Association – this gives details about:
Details about the voting rights of the shareholders How profits will be distributed What procedures will be followed at the annual general meeting Once these documents are completed they are sent to the Registrar of Companies who issues a Certificate of Incorporation. A company must have this before it starts trading. Every year the company must send a copy of its audited accounts to Companies House. All profit in theory belongs to the shareholders, however, a proportion of the profit is usually put back into the business each year to replace old equipment or fund growth.
The remaining profit is then distributed between the shareholders according to the number of shares held. Public Limited Company – PAL These are the largest type of privately owned businesses in the I-J. Many started as small businesses, growing into Lad’s before being floated on the stock exchange. This means that any member of the public can buy shares in the business. The shareholders in these companies are different from the directors who are usually employed by the business. A company must have more that EYE,OHO before it can go public and must have a good financial track record. Benefits for the Owners
Much more capital (money) is available as there are more people to buy the shares – this makes expansion easier. Some public companies can be quite small – there needs to be a minimum of two directors and two shareholders. Large public companies can often operate more cheaply than small companies as they can operate economies of scale. This means they could mass produce goods or buy in bulk to save money. If the company is successful then the shares will increase in value which will increase the overall value of the company. A public company must be registered with the Registrar of Companies and has external regulations to comply with.
An annual general meeting (GM) must be held each year and all shareholders must be invited. Specific accounts must be prepared each year and audited, the public can have access to these accounts. Shareholders invest their money into and in return for this investment they are entitled to part of the profits – this is called a dividend. Shareholders may have little interest in the long term success of the business and may only be interested in a quick return on their investment. The original owners may lose control over the company. Multinational Companies They may begin to export their products.
Later they find it an advantage to switch their production to foreign countries. At this point they can be called multinational company. A multinational company means that it operates in at least two countries, usually both selling products and producing them in these countries. A I-J multinational will almost certainly be a PAL. All major industrialized counties have their own multinational companies owned by shareholders in their own country but operating internationally. Companies often become multinationals as size can help them compete against other businesses. Size can lead to lower costs of production and economies of scale.
The company may also be able to locate production more cost effectively. A multinational needs to be able to cope with a number of different problems: Size – often the sheer size and geographical spread of the company will make good communication essential Law & politics – the company must understand all the legal systems in the locations it operated. They usually are dealing with local and national government. They also have to be aware of the environmental regulations. Exchange rate fluctuations – multinationals may sell products and earn profits in a large umber of different countries.