Limited company accounts

Overview — Limited Companies

What is a limited company?

• Can be public (plc) — shares traded on a stock exchange — or private (ltd) — shares not publicly traded
• Limited liability: shareholders' responsibility for company debts is restricted to the amount invested in shares
• Owned by shareholders; managed by directors (who may or may not be shareholders)
• Note: preference shares and general reserves are not examined on this specification

Benefits

• Limited liability — personal assets are protected from business debts
• Raising capital — can issue shares up to the authorised limit; plcs can raise significant sums on the stock exchange
• Economies of scale — larger operations reduce unit costs; bulk buying discounts possible
• Market dominance — larger size means higher market share relative to competitors

Drawbacks

• Profit sharing — profits distributed to shareholders as dividends
• Complex legal setup — must appoint directors and auditors; register with Companies House
• Published accounts — financial statements are publicly available
• High set-up costs — registration fees and possibly flotation expenses for a plc
• Hostile takeover risk — for plcs, external parties can buy shares to gain control