Limited Companies A limited company is a separate legal entity from its members. This means the company can raise funds in its own right and any debt incurred belongs to the company, not its owners Definition Limited companies are owned by shareholders who have the protection of limited liability under law. This means that individual shareholders are not personally liable for the debts of the company; they are liable only up to the value of their investment in the company. Who owns it? What type of liability do members have? ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ What happens if the company becomes insolvent? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ How do you register a limited company?

Limited Companies - Documents Memorandum of Association Articles of Association Form 10 Form 12

Limited Companies 3 main types of limited company Private Limited Company PLCCompany limited by guarantee Private Limited Company more accurately called a private limited company by shares a business which is incorporated and therefore is a separate legal entity from its owners Ownership of the company is established through the division of shares, and so the owners are known as shareholders. Each shareholder’s liability is limited to the amount of capital they have invested in the business. Carry the suffix ‘Limited’ or ‘Ltd’ as part of their company name This is to ensure all relevant stakeholders are aware of the company’s limited liability status. Those who hold shares in a private limited company can only sell their shares to investors that the other shareholders approve of. SHARES ARE NOT SOLD PUBLICLY! Finance is mainly obtained through the sale of shares. Banks are more willing to lend to private limited companies as they tend to be larger and more established than sole traders or partnerships.

Private Limited Companies AdvantagesDisadvantages Raising capitalLack of privacy Limited LiabilitySet up costs ContinuityTaxation

Private Limited Companies AdvantagesDisadvantages SpecialisationLimit on capital Control

Public Limited Companies An incorporated business and is therefore a separate legal entity from its owners. The owners are its shareholders and each shareholder has limited liability Required by law to carry the suffix ‘PLC’ or ‘plc’ as part of their company name. Can offer its shares for sale to the general public though a recognised stock exchange such as the London Stock Exchange. Plc’s do not have to ‘float’ their shares on a stock exchange, though most choose to do so. In the UK the shares of public limited companies are traded on the London Stock Exchange (LSE) in either the main market or the Alternative Investments Market which specialises in trading of shares in smaller, growing businesses. Controlled by majority shareholders Characteristics AdvantagesDisadvantages Raising CapitalLack of privacy Limited LiabilitySet up costs

Public Limited Companies AdvantagesDisadvantages ContinuityDivorce of ownership and control SpecialisationThreat of takeover

Company Limited by Guarantee An alternative type of corporation, which does not have share capital or shareholders but rather has guarantors or trustees. These guarantors enjoy limited liability status and undertake to contribute a nominal sum (normally £1) in the event of the company being wound up. Must carry suffix ‘Ltd’ after its name Cannot distribute profits to members and is therefore eligible to apply for charitable status. Often formed to manage sports clubs, non governmental organisations or charities. Well known examples include OXFAM, PGA and the Institute of Fiscal Studies

Franchise An agreement between two parties, which gives one party (the franchisee) the rights to market a product or service using the trademark of another business (the franchisor). In return the franchisee normally agrees to pay the franchisor certain fees and royalties The term ‘franchising’ has been used to describe many different forms of business relationships, from licensing agreements to distributor and agency arrangements. When the term ‘franchising’ is used it normally refers to one of the two main types of franchise agreement: Business Format Franchising and Product and Trade-name franchising. Franchisee must agree to abide by rules set out by franchisor at all times. Characteristics Most common form of franchise agreement and is a scheme whereby the franchisor offers a wide variety of services to the franchisees, which include the use of trademarks and logos, as well as a complete system for doing business. The franchisor will normally asist the franchisee with site selection, interior layout and design, hiring and training staff, advertising and marketing, and product supply. In return for these services the franchisee will pay a fee upfront and ongoing royalties to the franchisor. These payments are used by the franchisor to provide research, development and marketing support for the entire franchise organisation. Found in industries like fast-food restaurants, estate agents and recruitment agencies. Well known business format franchises include Burger King and Subway. Business Format Franchising

Franchise A less involved form of franchising whereby the franchisor provides trademarks and logos, national advertising campaigns and products but does not provide a complete business system. Franchisee pays the franchisor a fee upfront but is not obliged to pay any additional royalties Commonly found in soft drink and car sales industries E.g. Charles Hurst motor group has product and trade name franchise agreements with a wide range of car manufacturers including BMW, Land Rover, Volvo and Mazda. Product and Trade-Name Franchising NUMBER OF FRANCHISES HAS GROWN BY OVER 44% IN THE LAST 10 YEARS!!