Limited-Companies Igcse Edexcel

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Exam code:4AC1

Limited companies

A limited company is a business owned by shareholders
The ownership of the company is divided into parts known as shares
- Each share has a monetary value called nominal, face or par value
Owners of a limited company have limited liability
- This means the business is a separate legal entity from its shareholders, who are only liable for the amount they invest
  - If the company fails, shareholders only lose the share capital they have put into the business
The reward the shareholder receives for investing their money in the limited company is called a dividend
- Dividends are paid from the profits the company makes

Limited companies can often raise more capital than sole traders or partnerships through the sale of shares
- Lenders may also be more willing to lend to a company, as they are considered to less of a risk than unincorporated businesses
The owners of a limited company have limited liability, whereas sole traders and partnerships have unlimited liability

Limited companies must fulfil more legal requirements than traders and partnerships
- This includes carrying out regular audits and making their annual financial performance public
It can cost more to set up and run a limited company than operating a sole trader or partnership business
- Accounting and legal costs can be significant

The differences between private and public limited companies are summarised in the following table:

	Private limited company	Public limited company
Sale of shares	Shares are usually sold privately	Shares are sold to the public on the stock exchange
Number of directors	At least one director is required	At least two directors are required
Access to capital	Finance can be raised through the private sale of shares or from some external sources, such as loans	Large numbers of shares can be sold publicly Finance can be raised through the sale of debentures Lenders are likely to grant loans as the risk is low