Limited Companies and Multinationals 

Feature of Limited Companies 

Limited liability companies (LLCs) are incorporated. This means they have a legal identity separate from their own. They have the ability to own resources, create contracts, hire people, and sue and be sued. 

The other main features of limited companies are as follows: 

• ➔ The owners are only liable to a certain extent (limited liability). When a limited company is in debt, the ownecan only lose the money they put in. They cannot be forced to pay off business debts with their personal money
• ➔ The company raises money by selling shares. A number of these shares are owned by each Shareholder. They also receive a profit-based dividend. Dividends will be higher for those who own more shares. 
• ➔ The shareholders elect directors to run the company. The board of directors, headed by a chairperson, is accountable to shareholders. The Chairperson should run the company as the shareholders wish, if the company performs badly, directors can be voted out at an annual general meeting (AGM). 
• ➔ Sole traders and partnerships pay income tax, companies pay corporation tax on profits. 
• ➔ To form a limited company, it is necessary to follow a legal procedure (discussed below). 

Forming a limited company 

• Firstly, a limited company must have a minimum of two members, but there is no upper limit. 
• Before a limited company may be created, some important documents must be sent to the registrar of companies. The memorandum of association and the articles of association are the two most important. 
• The company will receive a certificate of incorporation if these documents are acceptable. It can now operate as a limited company. The shareholders have a legal right to attend the AGM, and they must be informed in writing of the time and place. 

Memorandum of Association

This sets out the constitution and gives details about the company. The following details must be included:

• Name of company
• Name and address of the company’s registered office
• Objectives of the company and the nature of activities
• Amount of capital to be raised and the number of shares to be issued

Articles of Association

This document deals with the internal running of the company. The Articles include details such as:

• Rights of shareholders depending on the type of share they hold
• Procedures for approaching directors
• Length of time directors should serve before re-election
• Timing and frequency of company meetings
• Arrangements for auditing company accounts

There are two main types of limited company: 

• a private limited company (ltd) 
• a public limited company (plc) 

Private Limited company 

• A private limited company can be a small or large business. Shares can be transferred privately (from one individual to another). 
• All shareholders must agree on the transfer and they cannot be advertised for sale.
• Shares in private limited companies cannot be traded on the stock market. 
• They are often family businesses owned by family members or close friends. 
• The directors of these firms tend to be shareholders and are involved in the running of the business. 

Some advantages of a private limited company 

• the owners have limited liability 
• any new shareholders need to be invited, which protects the business from outside influence 
• shares in the business can be sold to raise money – Large amounts of capital can be raised.

Some disadvantages of a private limited company 

• there is often more paperwork- bureaucracy 
• In some instances, other people are able to view the business’s financial information – financial information is used to be made public 
• it can be very time consuming to set up and costly 
• Cannot raise huge amounts of money like PLCs 

Public Limited Companies 

In a Public limited Company, shares are sold to the public on the stock market. People who own shares are called ‘shareholders’. They become part owners of the business and have a voice in how it operates. A chief executive officer (CEO) and board of directors manage and oversee the business’ activities. 

• Flotation – process of a company going public 
• Stock Market – market for shares in PLCs 

‘Going public’ can expensive because: 

• The company needs lawyers to ensure that prospectus is legally correct 
• The prospectus has to be printed 
• There are advertising and administrative expense 
• The PLC must have a minimum of £50000 share capital. 

Advantages of being a Public Limited Company includes: 

• the business has the ability to raise additional finance through share capital 
• the shareholders have limited liability 
• there are increased negotiation opportunities with suppliers in terms of prices because larger businesses can achieve economies of scale 

Disadvantages of being a Public Limited Company includes: 

• it is expensive to set up, requiring a minimum of £50,000 
• there are more complex accounting and reporting requirements (time consuming) 
• Outsiders cna take control by buying shares 

Prospectus – document produced by a company that wants the public to buys it shares 

Regulatory control – official power to control an activity and to make sure that it is done in a satisfactory way 

Features of multinationals 

Multinational companies or MNCs are companies that operate in a number of countries around the world.

Key Features of Multinationals include: 

• Very high assets and turnover (sales) 
• Good quality products 
• Powerful marketing and advertising 
• Highly advanced and up-to-date technology 

Ownership and control is centred in the host country 

There are a number of reasons that businesses become MNCs, they generally include: 

• increased market share 
• cheaper production costs 
• economies of scale 
• avoiding barriers to trade 
• potential government grants and other funding