3Why Become a Shareholder? Shares in public limited companies are available to buy on the stock exchange.
4WHAT 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.
5WHO CONTROLS THE COMPANY SHAREHOLDERSSo it is owned by its shareholders and run by its directors who are elected by the shareholders!!!electDIRECTORSwho overseeMANAGERS
6Limited Liability Company AdvantagesEach 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 moneyDisadvantagesA 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
7Limited Liability Company Public limited CompanyMust 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 CompanyMust 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.
9SO 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!
10FORMING A COMPANY The steps to forming a limited company are: Register with Registrar of Companies at Companies HouseDraw up a Memorandum of AssociationDraw up the Articles of AssociationObtain a Certificate of Incorporation from the Companies’ RegistrarThe company can then start trading
11Share capital of Company Share PremiumThe 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 etcThe 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 ( = 500)It is a capital reserveIt cannot be used for paying dividend of a companyIt can be used for issuing bonus shares
12Share 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 capitalIt is part of the authorised share capital that have already been issued to the shareholders , it is equal to or less than Authorised share capitalCalled up capitalIt 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 CapitalIt refers to part of the called up capital that has been received by the company from shreholedersDividendIt is the reward given to shareholders for their investment , it is paid from profits made during the year.
13Types of shares Ordinary Shares Preference Shares They are known as equity sharesShareholders of these shares are the owners of the companyShareholders have got voting rights, one share one voteThese shares have greater riskOwners of these shares receive dividend after preference dividend has been paidOrdinary dividend is not fixed , it varies with the availability of profit ie more profits more dividend ,no profits no dividendThey are not owners of the companyPreference shareholders have no voting rightsThe shareholders receive a fixed rate of dividend.The rate of dividend is given before the word Preference sharesIn the event of liquidation they are paid their capital before ordinary sharehldersThey are less risk
14Types of shares continues Cumulative preference sharesShareholders of this class are entitled to have arrears of dividend carried forward to future years when sufficient profits are available to the arrearsNon-Cumulative preference sharesShareholders of this class are not entitled to have any arrears of dividend carried forward if there is insufficient profits
15Examples 10 000 ordinary shares of $1 each were issued at $1.25 ordinary shares of $1 each were issued at parordinary shares of $0.50 each were issued at a premium of $0.25 each% preference shares of $1 each were issued at $1.50 each% preference shares of $1 each were issued at $3 each.ordinary shares of $2 each were issued at $3.50 each
16Reserves of a Company Revenue reserves Capital reserves Can be used to pay dividendExamples areRetained profitsGeneral reserveAll reserves revenue or capital belong to Ordinary shareholdersCan not be used to pay dividend but can use to pay bonus sharesExampleShare premiumRevaluation reserveCapital redemption reserve
17Loan Capital Debentures It is a long term loan secured on fixed Assets ( NCA)It has a fixed rate of interestThe interest is payable whether or not the company makes a profitThe interest is an expense appears in the Income statement.Debentures holders are not owners of a company, no voting rightsIn the event of liquidation they are paid their capital before Preference shareholders.