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1. The Business Organisation

1. The Business Organisation. 1.2 Choosing the Right Legal Structure for the Business. Revisiting unit 1. 1.2 Choosing the Right Legal Structure. In unit 1 you looked at different types of legal structure, including private limited companies. What is a private limited company?

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1. The Business Organisation

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  1. 1. The Business Organisation 1.2 Choosing the Right Legal Structure for the Business 1.2 Choosing the Right Legal Structure for the Business

  2. Revisiting unit 1 1.2 Choosing the Right Legal Structure • In unit 1 you looked at different types of legal structure, including private limited companies. • What is a private limited company? • How can it raise finance? • What is limited liability? • In this section you will look at the advantages and disadvantages of a private limited company becoming a public limited company. • Why might a business want to become a public limited company?

  3. 1.2 Choosing the Right Legal Structure Public Limited Companies 17 18 19 20 21 22 23 24 25 26 27 28 30 16 14 13 12 11 10 9 8 7 6 5 4 3 2 1 End 29 15 You have 30 seconds to write down as many businesses as you can think of with PLC after their name, starting from NOW!

  4. 1.2 Choosing the Right Legal Structure for the Business 1.2 Choosing the Right Legal Structure for the Business • In this topic you will learn about: • Private Limited Companies (ltd) • Public Limited Companies (plc)

  5. REVISITING UNIT 1 – PRIVATE LIMITED COMPANIES Private Limited Companies exist in their own right The owners and the company are separate legal entities The company’s finances are separate from the owner’s personal finances Shareholders are the owners of Private Limited Companies Shareholders have limited liability – they are not responsible for the company’s debts Shareholders can only lose the money that they have invested in the business in the form of shares

  6. Benefits Limited Liability Increased sources of finance More expertise available Difficult for hostile takeovers to occur Drawbacks Competitors can see financial information Difficult for individual shareholders to sell their shares, as other shareholders have to agree Greater legal constraints Can’t sell shares to the general public REVISITING UNIT 1 – PRIVATE LIMITED COMPANIES Shares can only be sold to family and friends. Why could this be seen as both an advantage and disadvantage?

  7. WHAT ARE THE SIMILARITIES BETWEEN A PRIVATE AND APUBLIC LIMITED COMPANY? • They exist in their own right • The owners and the company are separate legal entities • The company’s finances are separate from the owner’s personal finances • Shareholders are the owners of Limited Companies • Shareholders have limited liability • Shareholders can only lose the money that they have invested in the business in the form of shares • Public limited companies operate in the private sector

  8. HOW DOES A PUBLIC LIMITED COMPANY DIFFER FROM A PRIVATE LIMITED COMPANY? • Public Limited Company has PLC after its name • What does a Private Limited Company have? • A PLC must have issued at least £50 000 worth of shares • At least 25% (£12 500) of shares have to be paid up i.e. they have been paid for • A PLC can sell shares to the general public • A PLC can be listed on the Stock Exchange Public Limited Companies operate in the private sector, NOT the public sector. What is the private sector? What is the public sector?

  9. PLCs – activity 1.2 Choosing the Right Legal Structure Visit the following website: www.londonstockexchange.com Click on the link to the FTSE100 Fill in the table below with information regarding these PLCs If you were given £10000 to invest in a business of your choice which one would it be and why?

  10. ADVANTAGES OF MOVING FROM A PRIVATE LIMITED COMPANY TO BECOME A PUBLIC LIMITED COMPANY? • Flotation on the stock market allows access to a larger scale of sources of finance • PLCs tend to be large, stable companies meaning it is easier to access further to finance from banks • Enhanced reputation of the company due to its plc status • The company gains exposure through the Stock Exchange Flotation occurs when an organisation makes an offer of shares to the public (Initial Public Offering or IPO)

  11. DISADVANTAGES OF MOVING FROM A PRIVATE LIMITED COMPANY TO BECOME A PUBLIC LIMITED COMPANY? • Flotation is an expensive process and not guaranteed to be successful • The general public can buy shares meaning that the company is open to takeover • Financial information is freely available for anyone to see, including competitors • Stricter rules and regulations are placed on PLCs The divorce of ownership and control means that the owners of the business, the shareholders, might be different than those who control it, the board of directors

  12. 1.2 Choosing the Right Legal Structure for the Business What are the advantages of being on the London Stock Exchange? What are the disadvantages of being on the London Stock Exchange? Overall do the advantages outweigh the disadvantages or not?

  13. 1.1 Choosing the Right Legal Structure What store am I? • I am a British company, founded in 1919 • My first days sales were £4 with a profit of £1 • I opened my first store in North London in 1929 • I became a private limited company in 1932 • I became a public limited company in 1947 • In 1979 annual sales reached £1 billion for the first time • By 1982 this had doubled to £2 billion • In 1992 ‘Computers for Schools’ was launched • In 1997 Terry Leahy became Chief Executive • By 2010 I was a multi-national company with stores in China, Japan, the USA, Malaysia, Europe and across the globe • In March, 2011 Philip Clarke is set to takeover as Chief Executive

  14. 1.2 Choosing the Right Legal Structure for the Business Paul Davis has run a computing business for a number of years. The company is a family business. Paul has two fellow directors, his brother and sister, and the business has private limited company status. There are a number of shops and five employees. One of the main objectives of the company is expansion. At a recent board meeting Paul’s brother, George, suggested that the company should convert from Ltd. Status to become a public limited company (plc). Question Time What is a private limited company? (2 marks) Recommend to the board of directors whether the company should convert to become a public limited company or remain as a limited company. Give reasons for your answer (9 marks)

  15. 2 Minute Test You have two minutes to answer the following: • Give two advantages of being: • a private limited company • a public limited company • Give two disadvantages of being: • a private limited company • a public limited company End

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