Private vs Public Limited Companies
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Questions and Answers

What is a key feature of a sole trader?

  • Collective decision making
  • Full control by one person (correct)
  • Shared profits among multiple partners
  • Limited liability

    • What is a unique feature of a Private Limited Company regarding its name?

  • It must include 'Inc.'
  • It must include 'ltd.' (correct)
  • It must include 'PLC'
  • It must include 'S.A.'

    • In a partnership, all partners have limited liability.

    False

    What type of liability do sole traders have regarding business debts?

    <p>Unlimited liability</p> Signup and view all the answers

    Public Limited Companies cannot raise capital through public share sales.

    <p>False</p> Signup and view all the answers

    In a partnership, decisions are made ________ based on the partnership agreement.

    <p>collectively</p> Signup and view all the answers

    What document outlines the rules and regulations for the management of a Private Limited Company?

    <p>Articles of Association</p> Signup and view all the answers

    Match the business organization type with its characteristic:

    <p>Sole Trader = Unlimited liability for debts Partnership = Ownership shared by multiple individuals Taxation for Sole Trader = Personal income taxation Decision Making in Partnerships = Collective decision-making process</p> Signup and view all the answers

    A Public Limited Company must have a minimum of ______ shareholders.

    <p>7</p> Signup and view all the answers

    Match the following features with the type of company they belong to:

    <p>Must include 'ltd.' = Private Limited Company Shares publicly traded = Public Limited Company Limited liability = Both High capital raising potential = Public Limited Company</p> Signup and view all the answers

    Study Notes

    Private Limited Companies

    • Private limited companies are distinct legal entities separate from their owners.
    • To form a private limited company, two documents are required:
      • Memorandum of Association: outlines the company's structure, objectives, and initial shareholders.
      • Articles of Association: details rules for company management, operations, governance, and finance.
    • A private limited company must include “ltd.” (short for limited) in its name.
    • Moderate ability to raise capital through private shareholder sales.
    • Advantages:
      • Limited liability.
      • Owners have full control.
      • Business continuity even if shareholders retire.
      • Shared workload.
    • Disadvantages:
      • Potential conflicts among owners.
      • Limited capital raising potential.
      • Adherence to corporate regulations, annual returns, and accounting procedures.

    Public Limited Companies

    • Minimum of 7 shareholders with no maximum limit.
    • Shares can be publicly traded on the stock exchange.
    • Company name must include “PLC” or “INC”.
    • High capital raising potential through public share sales.
    • Increased likelihood of bank financing due to public status.

    Sole Trader

    • A sole trader is a business owned and run by one person.
    • The owner has full control over all aspects of the business and is legally responsible for its finances.
    • Features:
      • Unlimited liability.
      • Owner makes all decisions solely.
      • Income is taxed as personal income.
    • Advantages:
      • Owner has full control over the business.
      • Easy to establish.
      • Simple tax structure; profits are taxed as personal income
    • Disadvantages:
      • No separate legal entity.
      • Owner bears the entire workload and responsibility.
      • Difficult to raise large amounts of capital.

    Partnerships

    • Partnerships are business organizations owned by two or more people, sharing responsibilities, profits, and liabilities.
    • Features:
      • Owned by two or more persons.
      • General partners have unlimited liability, unless it is a limited partnership.
      • Decisions are made collectively with varying levels of authority based on the partnership agreement.

    Limited Partnerships

    • Limited partnerships cannot have more than 20 people.
    • Must have one or more general partners who are liable for all debts and obligations of the company.
    • Limited partners' liability is limited to their capital contribution.
    • Limited partners do not deal with day-to-day operations.
    • A partnership agreement is required to establish a limited partnership, outlining:
      • Partnership name.
      • Nature of the business.
      • Start date.
      • Amount of capital contributed by each partner.
      • Profit and loss division arrangement.
      • Roles and responsibilities of each partner.
      • Voting rights.
      • Duration of the partnership.

    Tertiary Sector

    • This sector involves providing services to individuals and businesses.
    • Examples:
      • Retail
      • Healthcare
      • Education
      • Financial services
    • Advantages:
      • Employment opportunities.
      • Economic contribution.
      • Service delivery.
    • Disadvantages:
      • Service quality (due to the size of the sector).
      • Training cost
    • Characteristics:
      • Consumer interaction.
      • Variety.
      • Economic contribution.

    Primary Sector

    • This sector involves the extraction and harvesting of natural resources from the Earth.
    • Examples:
      • Agriculture
      • Mining
      • Fishing
      • Forestry
    • Advantages
      • Open employment opportunities in rural areas.
      • Availability of the country’s resources.
      • Provides materials for secondary and tertiary sectors.
    • Disadvantages:
      • Environmental impact.
      • No potential to earn revenue.
      • Decrease in demand.

    Secondary Sector

    • This sector involves the processing, manufacturing, and construction of goods.
    • Examples:
      • Construction
      • Manufacturing
      • Textile production
      • Food processing
    • Advantages:
      • Earn foreign exchange for exported products.
      • Reduce the amount of imported goods.
      • Employment creation.
    • Disadvantages:
      • High initial cost.
      • Environmental concerns.
      • Economic fluctuations.

    Joint Ventures (JV)

    • A joint venture is a strategic partnership between two or more independent companies collaborating to achieve a specific goal.
    • Companies share both the profits and the risks in a joint venture.
    • Each partner typically contributes capital or resources.

    Reasons for Joint Ventures

    • Risk Sharing: businesses can pool their resources and share risks.
    • Cost Sharing: large-scale initiatives become more feasible.
    • Technological Advances: development of new technology.
    • Access to Capital: access to capital, resources, and partners.
    • Market Expansion: expanding to reach a broader customer base.

    Types of Joint Ventures

    • Licensing: A company grants a licensee in a foreign market the right to produce its products or use its manufacturing processes.
    • Joint Ownership: Companies create a new company with shared ownership, management, and profit-sharing.

    Co-operatives

    • A co-operative enterprise is owned and operated by a group of individuals for their mutual benefit.
    • Members share profits and decision-making responsibilities.
    • Advantages:
      • Democratic control.
      • Shared profits.
      • Social objectives.
    • Disadvantages
      • Limited access to finance.
      • Slow decision-making.
      • Profit sharing may reduce individual performance incentives.

    Franchises

    • Franchises are businesses where a franchisee is granted rights to operate using the franchisor's (parent company) branding, products, and operational model.
    • Financing is easier when using an established brand.

    Types of Franchises

    • Business Format Franchises: a company expands by supplying independent business owners with an established business, including its name and trademark.
    • Product Franchises: manufacturers control how retail stores distribute their products.
    • Manufacturing Franchises: a franchisee grants a manufacturer the right to produce and sell goods using its name and trademark.

    Ability to Raise Finance (Franchises)

    • Strong: Franchises have more access to finance due to the established brand, proven business model, and support from the franchisor.
    • Appropriate: for entrepreneurs seeking reduced risk, as they benefit from an existing brand, marketing, and operational support.
    • Changing from a franchise to an independent business can be challenging due to strict contractual obligations.

    Advantages (Franchises)

    • Lower risk.
    • Brand recognition.
    • Support from franchisor.

    Disadvantages (Franchises)

    • Limited control.
    • Franchise fees.
    • Reputation dependency.

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    Description

    Explore the differences between private limited and public limited companies in this quiz. Understand their formation, advantages, disadvantages, and regulations. Test your knowledge on the essential documents and capital raising potential involved in these business structures.

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