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Questions and Answers
What is a key feature of a limited company that distinguishes it from a partnership?
What is a key feature of a limited company that distinguishes it from a partnership?
- It requires public disclosure of financial accounts.
- It offers unlimited liability to its owners.
- It is solely owned by one individual.
- Its ownership is represented by transferable shares. (correct)
Which statement correctly describes the liability of owners in a limited company?
Which statement correctly describes the liability of owners in a limited company?
- Liability is limited to their investment in the company. (correct)
- Owners have joint liability for all debts.
- Liability can extend to personal assets of the owners.
- Owners can lose more than they invested in cases of company failure.
What document is primarily used to outline the objectives of a limited company?
What document is primarily used to outline the objectives of a limited company?
- Articles of association
- Statutory declaration
- Memorandum of association (correct)
- List of directors
Which of the following statements is true regarding the formation of a limited company?
Which of the following statements is true regarding the formation of a limited company?
What advantage does limited liability provide to the owners of a limited company?
What advantage does limited liability provide to the owners of a limited company?
What distinguishes a public limited company from a private limited company?
What distinguishes a public limited company from a private limited company?
In the context of companies limited by guarantee, who is typically responsible for the debts?
In the context of companies limited by guarantee, who is typically responsible for the debts?
What potential downside exists for partnerships compared to limited companies?
What potential downside exists for partnerships compared to limited companies?
Which of the following statements about the legal requirements of companies is true?
Which of the following statements about the legal requirements of companies is true?
What is a defining feature of a company that allows for limited liability?
What is a defining feature of a company that allows for limited liability?
When must companies hold their Annual General Meeting after the end of the accounting period?
When must companies hold their Annual General Meeting after the end of the accounting period?
Which of the following is NOT considered a statutory book that limited companies must keep?
Which of the following is NOT considered a statutory book that limited companies must keep?
What is a key characteristic of Private Limited Companies regarding their shareholder structure?
What is a key characteristic of Private Limited Companies regarding their shareholder structure?
What is a primary advantage of forming a company limited by guarantee?
What is a primary advantage of forming a company limited by guarantee?
Under which type of organization would a charity most likely fall?
Under which type of organization would a charity most likely fall?
What distinct feature do Public Limited Companies (PLC) have compared to Private Limited Companies?
What distinct feature do Public Limited Companies (PLC) have compared to Private Limited Companies?
What document specifically outlines the internal governance of a company including shareholder rights?
What document specifically outlines the internal governance of a company including shareholder rights?
What role does the Registrar of Companies play in the legal framework for limited companies?
What role does the Registrar of Companies play in the legal framework for limited companies?
What is required for shareholders during the Annual General Meeting?
What is required for shareholders during the Annual General Meeting?
Which of the following best describes the advantage of limited liability for shareholders?
Which of the following best describes the advantage of limited liability for shareholders?
When can the Articles of Association of a Private Limited Company be altered?
When can the Articles of Association of a Private Limited Company be altered?
Which of the following best describes an unlimited company?
Which of the following best describes an unlimited company?
What is a unique characteristic of public limited companies (PLCs) regarding trading?
What is a unique characteristic of public limited companies (PLCs) regarding trading?
Which of the following statements about companies limited by guarantee is accurate?
Which of the following statements about companies limited by guarantee is accurate?
What is one disadvantage of limited liability company status?
What is one disadvantage of limited liability company status?
Which of the following is NOT an advantage of limited liability for investors?
Which of the following is NOT an advantage of limited liability for investors?
What defines an unlimited company?
What defines an unlimited company?
How do public limited companies raise capital compared to private companies?
How do public limited companies raise capital compared to private companies?
What is one requirement that public limited companies must adhere to annually?
What is one requirement that public limited companies must adhere to annually?
Which of the following is true about the liability of companies limited by guarantee?
Which of the following is true about the liability of companies limited by guarantee?
Which statement accurately reflects the regulatory environment for limited companies?
Which statement accurately reflects the regulatory environment for limited companies?
What is one reason private companies often find it challenging to raise capital compared to public companies?
What is one reason private companies often find it challenging to raise capital compared to public companies?
Which of the following is NOT typically included in the Deed of Partnership?
Which of the following is NOT typically included in the Deed of Partnership?
What defines a limited partner in a limited partnership?
What defines a limited partner in a limited partnership?
Which of the following is an advantage of partnerships compared to limited liability companies?
Which of the following is an advantage of partnerships compared to limited liability companies?
What is a characteristic of general partnerships?
What is a characteristic of general partnerships?
Which statement accurately describes the capital contribution in partnerships?
Which statement accurately describes the capital contribution in partnerships?
What is typically NOT a feature of a limited partnership?
What is typically NOT a feature of a limited partnership?
Which benefit of partnerships can significantly enhance organizational effectiveness?
Which benefit of partnerships can significantly enhance organizational effectiveness?
General partnerships are most commonly associated with which professions?
General partnerships are most commonly associated with which professions?
Which factor contributes to greater access to capital for partnerships?
Which factor contributes to greater access to capital for partnerships?
In a limited partnership, who is primarily responsible for the debts of the partnership?
In a limited partnership, who is primarily responsible for the debts of the partnership?
A limited partner in a limited partnership has full liability for all debts of the partnership.
A limited partner in a limited partnership has full liability for all debts of the partnership.
Partnerships generally have lower access to capital due to limited pooling of resources.
Partnerships generally have lower access to capital due to limited pooling of resources.
General partnerships must include at least one partner with limited liability.
General partnerships must include at least one partner with limited liability.
The Deed of Partnership typically includes rules for partner retirement and admission.
The Deed of Partnership typically includes rules for partner retirement and admission.
A general partner in a limited partnership has no responsibility for the debts and obligations of the partnership.
A general partner in a limited partnership has no responsibility for the debts and obligations of the partnership.
Partners in a limited partnership may actively manage the business.
Partners in a limited partnership may actively manage the business.
The planned duration of a partnership is usually specified in the Deed of Partnership.
The planned duration of a partnership is usually specified in the Deed of Partnership.
General partnerships are uncommon in the accounting and legal professions.
General partnerships are uncommon in the accounting and legal professions.
Cheque signing regulations are typically outlined in the Deed of Partnership.
Cheque signing regulations are typically outlined in the Deed of Partnership.
All partners in a general partnership are considered agents of the partnership.
All partners in a general partnership are considered agents of the partnership.
In a partnership, each partner has limited liability for the debts of the partnership.
In a partnership, each partner has limited liability for the debts of the partnership.
A company has a legal existence that is completely separate from its owners.
A company has a legal existence that is completely separate from its owners.
The memorandum of association is not a crucial document in the formation of a limited company.
The memorandum of association is not a crucial document in the formation of a limited company.
Companies typically undergo formation procedures conducted by their owners without the need for legal documentation.
Companies typically undergo formation procedures conducted by their owners without the need for legal documentation.
Profits earned by partnerships are taxed at corporate tax rates.
Profits earned by partnerships are taxed at corporate tax rates.
The life of a partnership can be extended indefinitely through the agreement of its partners.
The life of a partnership can be extended indefinitely through the agreement of its partners.
The articles of association govern the internal management of a limited company.
The articles of association govern the internal management of a limited company.
A company can issue shares representing exactly the amount of nominal share capital it has determined.
A company can issue shares representing exactly the amount of nominal share capital it has determined.
Each partner in a partnership can unilaterally dissolve the partnership without consequences.
Each partner in a partnership can unilaterally dissolve the partnership without consequences.
A company is considered an entity capable of entering into contracts and incurring liabilities.
A company is considered an entity capable of entering into contracts and incurring liabilities.
A company must hold its Annual General Meeting within 6 months of the end of the accounting period.
A company must hold its Annual General Meeting within 6 months of the end of the accounting period.
Limited liability means that shareholders can lose more than they have invested in the company.
Limited liability means that shareholders can lose more than they have invested in the company.
Registering with the Registrar of Companies is one of the legal requirements for limited companies.
Registering with the Registrar of Companies is one of the legal requirements for limited companies.
Statutory books include the register of shareholders but do not include minute books of director's meetings.
Statutory books include the register of shareholders but do not include minute books of director's meetings.
A company, being a separate legal entity, cannot be sued independently of its shareholders.
A company, being a separate legal entity, cannot be sued independently of its shareholders.
Sole proprietorships require the publication of accounts to the public.
Sole proprietorships require the publication of accounts to the public.
Partnerships can only have verbal agreements for the operational terms of the business.
Partnerships can only have verbal agreements for the operational terms of the business.
The owner of a sole trader business enjoys limited liability for business debts.
The owner of a sole trader business enjoys limited liability for business debts.
Partnerships are generally required to publish detailed financial statements.
Partnerships are generally required to publish detailed financial statements.
One of the advantages of a sole trader organization is its simplicity and ease of setup.
One of the advantages of a sole trader organization is its simplicity and ease of setup.
Limited liability companies cannot raise capital through partnerships.
Limited liability companies cannot raise capital through partnerships.
In a partnership, personal assets of the owners are always protected from business liabilities.
In a partnership, personal assets of the owners are always protected from business liabilities.
All forms of business organization require extensive legal controls and regulations.
All forms of business organization require extensive legal controls and regulations.
A company limited by guarantee requires its members to provide capital upon formation.
A company limited by guarantee requires its members to provide capital upon formation.
Unlimited companies can have their members personally liable for the company's debts without any limit.
Unlimited companies can have their members personally liable for the company's debts without any limit.
Public limited companies (PLCs) must have their financial accounts audited annually and filed with the Registrar of Companies.
Public limited companies (PLCs) must have their financial accounts audited annually and filed with the Registrar of Companies.
In a limited liability company, the investor's liability is unlimited.
In a limited liability company, the investor's liability is unlimited.
Limited companies face fewer regulatory requirements compared to sole traders.
Limited companies face fewer regulatory requirements compared to sole traders.
The right to reduce issued capital without court permission is an advantage of unlimited companies.
The right to reduce issued capital without court permission is an advantage of unlimited companies.
A company limited by guarantee is commonly used for profit-oriented businesses.
A company limited by guarantee is commonly used for profit-oriented businesses.
Profits in a limited company are taxed at the personal income tax rate of the owners.
Profits in a limited company are taxed at the personal income tax rate of the owners.
Members of public limited companies can sell their shares privately without any restrictions.
Members of public limited companies can sell their shares privately without any restrictions.
Limited liabilities allow business continuity even in case of death or incapacity of the owners.
Limited liabilities allow business continuity even in case of death or incapacity of the owners.
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Study Notes
Partnerships
- Partnerships are entities formed by two or more persons who agree to share profits and losses.
- There are two types of partnerships: general and limited.
- In a general partnership, each partner contributes capital and has full liability for all debts.
- A limited partnership consists of at least one general partner with full liability, and at least one limited partner with liability limited to their investment.
- Advantages of partnerships include simplicity, lack of legal restrictions, pooling of skills and resources, and increased borrowing capacity.
- Disadvantages of partnerships include instability, lack of limited liability, joint and several liability for debts, limited life, and profits taxed at income tax rates.
Limited Liability Companies
- A limited liability company is a separate legal entity with a distinct legal existence from its owners.
- The liability of owners is limited to their investment and any outstanding obligations to the company.
- Formation of a limited liability company requires legal documents like the Memorandum of Association and Articles of Association, which are registered with the Registrar of Companies.
- Once registered, the company can trade and is subject to legal requirements like keeping proper books of accounts, annual audits, and holding annual general meetings.
- Types of limited companies include private limited companies, public limited companies, companies limited by guarantee, and unlimited companies.
Private Limited Companies
- A private limited company has between two and fifty shareholders, with a minimum of two.
- It can commence trading immediately after incorporation.
- The transfer of shares is restricted, and the company cannot invite the public to subscribe for shares or loan notes.
- Accounts must be audited annually and filed with the Registrar of Companies.
- Private companies are typically formed to provide limited liability protection to their owners.
Public Limited Companies (PLCs)
- A public limited company requires at least seven shareholders and has no maximum limit.
- Shares are freely transferable, and the company can raise capital by issuing shares and loan notes to the public.
- PLCs are generally larger than private companies and require an annual audit of their accounts.
- A trading certificate must be obtained from the Registrar of Companies before a PLC can commence trading.
- Accounts are publicly available for inspection through online search.
Introduction to Legal Forms of Organisation
- One of the first decisions an entrepreneur must make is choosing the legal form of their business organization.
- The legal form chosen impacts the business in various ways including taxation, legal and financial requirements, and available financing options.
- Common legal forms of organization are:
- Sole proprietorships
- Partnerships
- Limited liability companies
- Not-for-profit organizations
Sole Trader Organizations
- A sole trader is a single individual conducting business in their own name, potentially with a registered business name.
- Advantages:
- Easy to set up with minimal legal constraints
- Privacy as accounts are not publicly disclosed
- Disadvantages:
- Unlimited liability, meaning the owner is personally responsible for all business debts, potentially risking personal assets
- Financing can be challenging due to a single owner
- Higher tax rates compared to other structures
Partnerships
- A partnership is a group of individuals operating a business together with a view to making a profit.
- Partnerships can be formed verbally or in writing. A written Deed of Partnership is often used, outlining key details:
- Name of the partnership
- Start date
- Duration of the partnership
- Rules for partner retirement or admission
- Capital contributions and profit distribution
- Cheque signing procedures
- There are two main types of partnerships:
- General Partnership: All partners share liability for business debts and obligations.
- Limited Partnership: At least one general partner with full liability and one or more limited partners with limited liability.
- Advantages:
- Simple to set up
- Flexibility in structure and operations
- Access to greater capital through pooling of resources
- Benefits from collective skills and expertise
- Privacy as accounts are not publicly disclosed
- Disadvantages:
- Can be unstable due to potential disagreements or conflicts
- Partners share unlimited liability for debts and business obligations
- The partnership's life can be limited by agreement or the lifespan of partners
- Profits are taxed at income tax rates.
Limited Liability Companies
- A company is a separate legal entity with a distinct identity from its owners.
- Companies have a perpetual life, continuing even if ownership changes.
- Ownership is represented by shares that can be traded.
- Advantages:
- Owner liability is limited to their investment and outstanding debts
- Easier access to capital through issuing shares and loans
- Business operations continue even if owners die or become incapacitated, providing continuity
- Profits are taxed at the corporation tax rate
- Disadvantages:
- More regulated and complex compared to sole traders or partnerships
- It's more difficult to withdraw money from a company
- Lack of privacy as accounts are publicly disclosed
Types of Companies
- Limited By Guarantee: Members guarantee to cover company debts up to a limit in the event of liquidation. Often used in non-profit organizations.
- Unlimited Companies: Members have unlimited liability, potentially exposing personal assets to business debts.
- Formation of a Company: Requires legal documents like:
- Memorandum of association
- Articles of association
- Statement of authorized share capital
- Statutory declaration of compliance
- List of directors and consent forms
Legal Requirements of Limited Liability Companies
- Companies must adhere to legal requirements outlined in the Companies Act:
- Keep proper books of account and have them independently audited.
- Register with the Registrar of Companies.
- Hold an Annual General Meeting (AGM) to present financial statements to shareholders and allow shareholder voting.
- Statutory books must be maintained including:
- Register of shareholders
- Register of debenture holders
- Register of assets given as security
- Register of directors and secretaries
- Register of director’s interests in ordinary shares and debentures
- Minute books of director’s meetings and general meetings
- Record of directors' declarations of interests in company contracts
- A company is a separate legal entity and can be sued independently of its owners.
Other Types of Legal Organizations: Not-for-Profit
- Examples include:
- Co-operatives
- State-sponsored enterprises
- Charities
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