1. A Limited Company A Business owned by shareholders who each give the business money in exchange for Shares It is run by directors (who may also be shareholders) Shareholders are granted Limited Liability – which reduces the risk of owning a part of a business.

2. Setting up a Limited Company 1.Register with Companies House and send them 2.Memorandum of Association - describes what the company has been formed to do 3.Articles of Association - internal rules covering: 1.What directors can do 2.Voting rights of shareholders 4.Issued with a Certificate of Incorporation 1.Date of incorporation 2.Company number A Company is a “separate” legal person so far as the law is concerned – i.e. it is separate from its shareholders

3. Who controls a Company? Shareholders own company Company employs directors to control management of business The directors may also be shareholders (most are) Directors are responsible to shareholders – Have a duty to act in best interests of shareholders – Have to account for their decisions and performance – Have to prepare financial statements and directors report for shareholders each year Why Employ Directors? – Shareholders who may not want to get involved in day-to- day decision-making

4. Importance of Limited Liability Limited liability – an important concept - It means Shareholders can only lose money they have invested This encourages people to invest in companies – lower risk than operating as a sole trader or partnership Those who have a claim against company: – Remember – the company is a “separate legal person” – you have to sue the company, not the shareholders – Limited liability means that they can only recover money from existing assets of business – They cannot claim personal assets of shareholders to recover amounts owed by company

5. 2 Types of Company Private Limited Companies – these have either Ltd. or Limited after their name. Public Limited Companies - these have PLC after their name

6. Private and Public Limited Companies Shares in a plc can be traded on Stock Exchange and any member of general public can buy shares and become a shareholder. Shares in a private limited company are not available to general public A private limited company is usually smaller than a PLC Private and Public Limited Companies are both companies! The main difference is concerned with the share capital of the company

7. Should a Private Company Become a “PLC”? Most don’t! Becoming a PLC is mainly about making it easier to raise money – Shares in a private company cannot be offered for sale to general public – Restricts availability of finance, especially if business wants to expand – It is also easier to raise money through other sources of finance e.g. from banks. – Note: becoming a “plc” does not necessarily mean that company is quoted on Stock Exchange – To do that, company must do a “flotation”

8. Disadvantages of Being a PLC Costly and complicated to set up as a plc Certain financial information must be made available for everyone, competitors and customers included If the PLC offers its shares on the Stock Exchange… – Shareholders in public companies expect a steady stream of income from dividends – Increased threat of takeover – Greater public scrutiny and profile (e.g. analyst reports, press reports)

9. Flotation When shares in a “PLC” are first offered for sale to general public Company is given a “listing” on Stock Exchange Opportunity for company to raise substantial funds Also a chance for existing shareholders to “cash in” by selling some or all of their shares (e.g. a venture capitalist who may have invested earlier) Complex and expensive process Visit the London Stock Exchange website to find out more about flotations 

10. Buying Shares in a Company Why buy shares? – Shares normally pay dividends = a share of profits – Companies on Stock Exchange usually pay dividends twice each year – Over time value of share may increase and so can be sold for a profit (known as a “capital gain”) – However - price of shares can go down as well as up, so investing in shares is risky. – If they have enough shares they can influence management of company A “venture capitalist” – Will often buy up to 80% of shares of a company and insist on choosing some of directors

11. Risks faced by Shareholders Remember – shareholder’s liability is limited However, there are still risks in investing: Company reduces its dividend or pays no dividend Value of share falls below price shareholder paid Company fails and investor loses money invested