St. George's Institute
COMPANIESA company is a business entity which has been incorporated. It is a legal entity, separate from its owner(s) i.e. it can enter into contract, can sue and can be sued. There are two types of companiesa) Private Limited Companies (Ltd is usually written as part of the name)b) Public Limited Companies (PLC is part of the name)A. PRIVATE LIMITED COMPANIESA company where 2-50 shareholders form a company.Characteristics1. Limited liability2. A separate legal entity3. Governed by a) memorandum of Association b) Articles of Association4. Directors elected at AGM5. Proper accounts must be kept for tax purposes6. 2-50 shareholders7. They tend to be owned by families and close friends.Advantages1. The company is separate from owners2. Shareholders have limited liability 3. Easy access to loans4. Larger capital base than sole traders or partnerships5. Privacy (The financial statements are private)6. Death of an owner will not affect the continuity of the business7. Profits are retained by the family 8. Shareholders are rewarded with dividends on profit.Disadvantages1. Shares are not traded publicly and therefore the capital base will be limited2. Skills may be limited3. Shares are not transferable without the director’s consent4. The decision-making process can be slow FormationCertain legal requirements are needed. See hand out given.ManagementThe owners manage the business or hire specialized personnel. Membership must approve disposal of shares and their sale is restricted to the members.PUBLIC LIMITED COMPANYAn incorporated company which offers shares to the public. Characteristics1. Limited liability2. A separate legal entity3. Governed by a) memorandum of Association b) Articles of Association c) Prospectus.4. Directors elected at AGM5. Proper accounts must be kept for tax purposes6. Shares are sold to members of the publicAdvantages1. The company is separate from owners2. Shareholders have limited liability up to the amount they have invested3. Easy access to loans4. Death of an owner will not affect the continuity of the business5. Risk is spread among shareholders6. Easy transfer of shares7. Specialists are hired to run the firm8. Shareholders are rewarded with dividends on profits Disadvantages1. Objectives of managers may be different from owners (shareholders)2. Workers are not part of decision making3. Accounts must be submitted for inspection and published 4. The decision-making process can be slow5. Risk of losing control of the company if another company acquires a greater percentage of shares in the business.6. Over expansion may lead to diseconomies of scale FormationCertain legal requirements are needed. ( See handout)CONGLOMERATEA group of companies, each of which operates in different industries. There is usually no common identity or purpose except that of making a profit. It consists of a parent company which controls the operation of a group of subsidiary companies or associated companies.Advantages Economies of scale Larger capital base Risk of business is spread across the industries Shareholders have limited liabilities Disadvantages Communication may be difficult Management may be difficult Weak subsidiaries may drain profits Risk of dis economies of scale MULTINATIONALSA firm of this nature is one which owns, controls and operates business activities in several countries at the same time. Decisions are made by the parent company. e.g. Cable and Wireless, Neal & MasseyAdvantages1. Provides investment in local economy2. Provides training, expertise, employment and tend to pay higher wages3. A source of taxation and foreign exchange4. Provides marketsDisadvantages1. Large amount of profits leave the country in which it operates to return to parent company2. May exploit natural resources of small countries3. The welfare of the country is not the concern of the company4. May leave country after tax holidays are over5. May harm the environment6. They nay leave if political ideas are not the same as theirs ................
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