RE-CAP What is a partnership? What is an advantage of becoming a partnership? What is a disadvantage of becoming a partnership? What document do you need to set up a partnership?

Limited Liability companies

Why Become a Shareholder? Shares in public limited companies are available to buy on the stock exchange.

WHAT IS A LIMITED COMPANY? A limited company is a business that is owned by its shareholders who have bought shares from the company, run by directors and has a separate legal identity from its owner.

WHO CONTROLS THE COMPANY SHAREHOLDERS So it is owned by its shareholders and run by its directors who are elected by the shareholders!!! elect DIRECTORS who oversee MANAGERS

Limited Liability Company Advantages Each shareholder enjoys limited liability. The debt is spread among shareholders. Easier to raise finance. There is continuity whatever happens. It is easier for the business to borrow money Disadvantages A complex management structure may be needed. A lot of legal formalities required to set one up, which maybe costly and time consuming. The company is accountable to its shareholders and creditors. The company must produce accounts which are available to the public. Published Company Accounts 2014

Limited Liability Company Public limited Company Must have PLC after its name. Shares are sold to the general public on the stock exchange. Minimum £50,000 authorised share capital. Shareholders have the right to sell their shares to whoever they want. Minimum number of shareholders is seven. Usually larger. Private limited Company Must have Ltd after its name. Shares are not sold on the stock exchange , only sold to private individual. Not allowed listing on the Stock Exchange. Not allowed to advertise their shares. Minimum number of shareholders is two. Usually smaller.

SO AS YOU CAN SEE THEY ARE VERY SIMILAR!!

SO REMEMBER!!!!! The main difference! In a private limited company the shares are not offered for sale to the general public. Where as in a public limited company they are!

FORMING A COMPANY The steps to forming a limited company are: Register with Registrar of Companies at Companies House Draw up a Memorandum of Association Draw up the Articles of Association Obtain a Certificate of Incorporation from the Companies’ Registrar The company can then start trading

Share capital of Company Share Premium The capital of a company is divided into units called shares and each share has a face value , known as the nominal value of a share or par value eg $0.50 , $1; $2 etc The nominal value of a share does not change , it is fixed when a company starts operating, However companies are allowed to sell shares above their nominal values and make a Capital profit on selling shares called Share Premium. It is the difference between Selling price of share and the nominal value of a share. Eg A company issued 1000 shares of $1 each at $1.5 ( therefore $1 is the nominal value and $1.5 is the selling price of the shares) Therefore Share premium is ( 1 500-1 000= 500) It is a capital reserve It cannot be used for paying dividend of a company It can be used for issuing bonus shares

Share Capital Authorised share capital It is the maximum amount of share capital the company is allowed to issue by the registrar of companies. Issued Share capital It is part of the authorised share capital that have already been issued to the shareholders , it is equal to or less than Authorised share capital Called up capital It is the total amount of capital that a company has requested from the shareholders to pay. It is less than the Issued capital. Paid up Capital It refers to part of the called up capital that has been received by the company from shreholeders Dividend It is the reward given to shareholders for their investment , it is paid from profits made during the year.

Types of shares Ordinary Shares Preference Shares They are known as equity shares Shareholders of these shares are the owners of the company Shareholders have got voting rights, one share one vote These shares have greater risk Owners of these shares receive dividend after preference dividend has been paid Ordinary dividend is not fixed , it varies with the availability of profit ie more profits more dividend ,no profits no dividend They are not owners of the company Preference shareholders have no voting rights The shareholders receive a fixed rate of dividend. The rate of dividend is given before the word Preference shares In the event of liquidation they are paid their capital before ordinary sharehlders They are less risk

Types of shares continues Cumulative preference shares Shareholders of this class are entitled to have arrears of dividend carried forward to future years when sufficient profits are available to the arrears Non-Cumulative preference shares Shareholders of this class are not entitled to have any arrears of dividend carried forward if there is insufficient profits

Examples 10 000 ordinary shares of $1 each were issued at $1.25 25 000 ordinary shares of $1 each were issued at par 15 000 ordinary shares of $0.50 each were issued at a premium of $0.25 each 20 000 6% preference shares of $1 each were issued at $1.50 each 100 000 8% preference shares of $1 each were issued at $3 each. 75 000 ordinary shares of $2 each were issued at $3.50 each

Reserves of a Company Revenue reserves Capital reserves Can be used to pay dividend Examples are Retained profits General reserve All reserves revenue or capital belong to Ordinary shareholders Can not be used to pay dividend but can use to pay bonus shares Example Share premium Revaluation reserve Capital redemption reserve

Loan Capital Debentures It is a long term loan secured on fixed Assets ( NCA) It has a fixed rate of interest The interest is payable whether or not the company makes a profit The interest is an expense appears in the Income statement. Debentures holders are not owners of a company, no voting rights In the event of liquidation they are paid their capital before Preference shareholders.