3.1.2 different forms of business

• What are the different types of limited companies?

  Private limited company (LTD)

  Public limited company (PLC)
• Companies are owned by shareholders they are all equal in percentage ownership

  Ordinary shares are with one vote, by law a company has its own existence
• What do you need to set up a business?

  Memorandum of association

  Articles of association --> the register of companies will issue a certificate of incorporation
• PLC's are much larger than LTD's

  The change from LTD to PLC is called floatation

  The price of shares fluctuate depending on demand, anyone can buy shares
• A shareholder is someone who owns a share in the business, ordinary shares are the most common type of share
• What is floatation?

  Shares issued on the stock exchange for the first time

  Its an opportunity for existing shareholders to release profits on thier investment

  Its a costly and time consuming process
• What is rights issue?

  Fresh issue of new shares to existing shareholders

  shareholders have the right to subscribe for the new shares, usually at a significant discount to the existing share price
• A business cannot float its shares until its worth is at least £50,000 the stock market wont allow a business to sell shares less than the worth of the business
• Market capitalisation represents the total market value of the issued share capital of the company. It can be calculated as;

  share price (per share) x Number of shares issued
• What is the shareholders role in a company?

  Provide capital

  Have a degree of influence

  Attend the AGM (annual general meeting)
• What is a sole trader?

  Owns their own business

  Have to keep records of income and expenses

  Profits are taxed

  Has unlimited lability --> personally responsible for all debts
• What are limited companies?

  Owners and the company are separate legal entities

  Shareholders own parts of these companies

  Need to be registered
• What are the benefits of PLC's?

  Limited liability

  Can sell shares to raise funds

  Can buy sell shares
• What are the disadvantages of LTD's?

  Limits funds

  Still have to publish some records

  Cant sell shares to anyone
• What are the advantages of LTD's?

  Can control who buys shares

  Invite people in

  Limited liabilty
• What are the disadvantages of PLC's?

  Have to publish records

  Anybody can buy shares

  No control on share price
• A share is an individual part of the issued capital of a company, most shares are ordinary shares
• A falling share price indicates excess supply there are more sellers than buyers, if the demand for a share increases than the share price should rise
• What happens with share prices in a private company?

  It is initially set when shareholders ''subscribe'' for their shares

  Their offer only determined when shares are bought or sold

  No active market in the shares - hard to judge current value
• What happens to share price in a public company?

  Highly transparent - show documents publicly

  All trades are disclosed, how many bought or sold

  Share process widely public and tracked
• Market capitalisation represents the total market value of the issued share capital of the company the formula used to calculate it is:

  share price (per share) x number of shares in issue
• What are the factors that influence share price (internal)?

  Financial performance

  Dividend policy

  Relationship with key investors

  Management reputation
• What factors influence share price (external)?

  State of economy

  General market sentiment

  Weather the company is a takeover target

  Alternative investors in the market (competition)