Edexcel Business A Level Revision

Private limited company - (Incorporated) A business that is owned by its shareholders known to the company, often family and friends, run by directors and where the liability of shareholders for the debts of the company is limited. Shares cannot be sold openly on the stock exchange, only to other shareholders, or people known to the business. This means that shares are often sold at a discount to the real value of the shares because the shareholders are "locked in" and either sell at the price that they are offered, or do not sell at all. ADVANTAGES Limited liability Separate legal identity More flexible than a Plc Financial records remain relatively private More capital can be raised through the sale of shares DISADVANTAGES More complex to set up due to increased legal requirements Some loss of control as shareholders have voting rights Unable to sell shares to the public

Liability - is a company's financial debt or obligations that arise during the course of its business Limited liability - An investor's liability/financial commitment is limited to the total amount invested or promised in share capital. An investor's personal belongings beyond this venture are protected. Unlimited liability - The owners of a business are responsible for the total amount of debt of the business. The owner may lose their personal belongings, e.g. home and cars, if the value of these is needed to cover the debts of the business. UNLIMITED LIABILITY IS SEEN AS A HIGH RISK Incorporated - An incorporated business (also called a corporation) is a type of business that offers many benefits over being a sole proprietor or partnership, including liability protection and additional tax deductions. Forming a corporation also allows you raise capital through sale of shares of your company . Creditors - is owed money, either by a business or an individual f...

Share capital -   Finance raised through the sales of shares by ONLY private and public limited companies. SHARE CAPITAL IS A FORM OF EQUITY CAPITAL e.g. the shareholder becomes a part owner of the business. Shareholders will be rewarded for their investment by the repayment of dividends but may also benefit from an increase in share pricing increasing the value of their shares. Issuing shares is a complex and costly process so only really an option for raising larger amounts of finance to fund long term projects. ADVANTAGES OF SHARE CAPITAL Only need to pay dividends if a profit is being made and the amount of dividend is not fixed. Possible to raise large amounts of finance No interest repayments DISADVANTAGES OF SHARE CAPITAL Loss of ownership as shareholders are part owners (ownership diluted) Potential risk of loss of control for a Plc with a threat of hostile takeovers. Complex and costly process of issuing shares, especially for a Plc.