Private and Public limited companies

1. 🞂 There are two types of
companies with shareholders:
www.igcsebusiness.co.uk
1. PRIVATE LIMITED COMPANIES
&
2. PUBLIC LIMITED COMPANIES

2. Mike and Gita made it clear that they want to work together
and expand their business but also wanted to protect their own
possessions … and they decided on a private limited company.

3. 🞂 These types of companies tend to be owned
by either family or friends and are quite often
not that much larger in size than a sole trader
or partnership.
🞂 Name of the business ends in ‘Limited’ or ‘Ltd’
🞂 The owners are called shareholders, each
holding a
share of the business.
1. They invest capital into the business
2. Have a say in the running of the business
3. Share the business profits
4. Shares cannot be sold or transferred to anyone
else without the agreement of the other
shareholders.
5. Shares are therefore not offered to the public.

4. 🞂 All shareholders have limited liability. They are only
liable for the limited amount that they have invested.
Even If my decisions are chasing
me for payment, they are not
allowed to sell my car or house
to get their money back. I am
only losing what I initially
invested in the business!

5. 1. The Articles of Association 2. The Memorandum of Association
🞂 Contains the rules under
which the company will be
managed (INTERNAL)
🞂 It states
🞄 The rights and duties of
all the directors
🞄 The rules concerning the
election of directors
🞄 The holding of official
meetings
🞄 Procedure to be followed
for the issuing of shares
🞂 Contains extremely
important information
about the company and the
directors. (EXTERNAL)
◦ The official name of the
company
◦ The objectives of the company
◦ Amount of share capital that
the directors intend to raise
◦ The number of shares to be
bought by each of the
◦ The address of the registered
offices of the company

6. Articles of
Association
Memorandum of
Association
Registrar of Companies
Certificate of Incorporation
Hooray!
We are in
business!
www.igcsebusiness.co.uk

7. Mike and Gita asked their solicitor to explain the advantages and
disadvantages of a private limited company for their taxi firm.
Advantages
1.
Selling shares to a large number
of people will raise large
2. All shareholders have limited
liability.
3. The company is a separate legal
identity from its shareholders.
4. The people who started the
business can still maintain
control of the business as long
as they do not sell shares to
many other people.
Disadvantages
1. Significantly larger amount of legal
paperwork to be filed before the
company formed
2. Shares cannot be transferred or sold to
anyone else without the agreement of all
other shareholders, hence causing
investors to be reluctant before spending
capital.
3. Secrecy decreases as the accounts of the
business are now privy to more people.
Each year, they must be sent to the
Registrar of Companies for inspection.
4. The company cannot offer its shares to
general public so less funds will be
generated
amounts of CAPITAL

8. 🞂 Master Foods (MARS Ltd)
www.igcsebusiness.co.uk

9. Mike and Gita discussed these advantages and disadvantages together
with their lawyer who told them that private limited companies are very
suitable in certain situations…
1. Family businesses
2. Partnerships who wished to expand but still maintain
some control over the business
3. Firms who find that the amount of capital that they
can raise is sufficient amongst family and friends.

10. Mike and Gita were impressed by the benefits of a private limited company
form of organization. The solicitor helped fill out the paperwork and they
named their business Express Taxis Ltd.
The business has been operating for many years. The two directors, Mike
and Gita, still owned most of the shares.
The company now owned 150 taxis and had diversified into the bus
services. It owned 35 buses.
The government had recently announced the privatazation of all bus
services in the country. Both Mike and Gita were determined to expand the
business further by buying many bus routes from the government. Many
new buses would be needed. A huge investment of $90 million would be
needed. Although profitable, the private limited company Express Taxis
Ltd could not afford this.
Mike and Gita went to see a specialist that advised them to convert their
company into a public limited company.

11. 1. A statement must be made to the Memorandum of Association
that the company is now a public limited company.
2. A certain minimum value of shares must be issued (GBP 50,000
in the UK)
3. Accounts must be laid out in a certain way and shared with the
public.
4. The company will apply to the Stock Exchange for a ‘listing’,
which means that it is now accessible for shareholders to buy
and sell shares. The Stock Exchange determines whether or not
it will permit the listing depending upon the performance of the
business and prospectus.

12. Prospectus: is a formal legal document
that provides detailed information about
the company and its securities (shares
or debentures) to potential investors. It
allows investors to make informed
decisions about whether to invest in the
company's securities.

13. 🞂 These types of companies tend to be owned by anyone
buying a share in the company. They buy shares from
the Stock Exchange.I.e. They are able to sell shares to
the public.
🞂 Name of the business ends in ‘plc’
🞂 Profits given to shareholders are called dividends.

14. Mike and Gita asked their solicitor to explain the advantages and
disadvantages of a public limited company for their taxi firm.
Advantages
1. Selling shares to a huge number
of people will raise a large
amounts of capital.
2. All shareholders have limited
liability.
3. The company is an incorporated
business and a separate legal
identity from its shareholders.
There is continuity.
4. There is no restriction on selling,
buying or transfer of shares.
5. These business have high status
in the market, causing attraction
to suppliers and to the banks.
Disadvantages
1.
3. Secrecy decreases as the accounts of the
business are now privy to more people.
Anyone can see them, anytime. They also
must be published every year.
4.
5.
6.
Can grow to be so large and so difficult
to control and manage.
Selling shares to the public is expensive.
There is a very real danger that the
original owners might lose control over
Significantly larger amount of legal
paperwork to be filed before the
company can be formed.
There are more regulations and control
to protect the rights of shareholders.
2.

15. Private Limited Companies have relatively few shareholders.
The directors are often the majority shareholders, which means that they can
ensure that their decisions are passed at all meetings.
Public Limited Companies can have thousands, even millions, of
shareholders.
It would be impossible for all the shareholders to be involved in taking
decisions. They are all invited to the Annual General Meeting (AGM).
In this meeting, the only decision that is really effective is the election of the
company directors. These professional managers are shareholders but not
necessarily major shareholders. They are given the responsibility of running
the business and taking decisions. They will only meet with the other
shareholders once a year at the AGM.

16. Shareholders
(owners)
may attend AGM
(few do)
Vote for Board of
Directors who take all
important decisions
+ responsible to
owners
This is called the
divorce between
ownership and
control.
Appoint managers for
day-to-day business
decisions

17. 🞂 Nike plc. 🞂 Pepsico plc.
.

18. 1. Sales of Share: The shares of PLC are sold on the stock
exchange – anyone can buy shares. The shares of LTD
cannot be openly bought by the public – private individuals
only.
2. Share Capital: A PLC must by law have atleast £50,000 in
share capital to set up. An LTD can start up with just £2
share capital
3. Size and number of share holders: The number of share
holders is likely to be greater in a PLC than in an LTD – due
to the way in which shares can be obtained. PLCs are
usually larger than LTDs.
4. Control: Shareholders own and control the company. Each
year at the AGM they appoint directors who represent the
shareholders and they in term appoint managers who run
the company.