Class notes
Lecture Notes on Limited Companies
- Course
- Institution
Notes on limited companies, their sources of finance with detailed explanation of the stock market and the UK's Coporate Governance Code
[Show more]
Seller
Follow
todd-200
Reviews received
Content preview
AccountingLimited Companies
There are two forms of limited companies: Public Limited Company (PLC) and Private
Limited Company (LTD).
Main Features of Limited Companies
Legal nature
- Separate legal entity
- They are owned by the shareholders
- Owners are separated from managers
Perpetual life
- They don’t die as a human dies
- They can be terminated through liquidation
Limited liability
- The company itself is liable for its debts and losses
- Whereas the owner’s liability is limited to the amount they have paid for in
shares
- Investors are thus protected and creditors take more risk
Legal safeguards
- The business has the publish their annual financial statements
- Audits are required for bigger organisations
- Shareholders aren’t able to withdraw share capital
Typical Sources of Long-term Finance
Long-term finance
Long-term
Retained
borrowings
Share earnings
issues
, Accounting
Returns to Shareholders and Lenders
A loan needs to paid on or by the due date, with the addition of interest that the company
agreed to pay. A loan repayment affects both assets (bank) and liabilities (loan). Interest in
expressed as an expense.
When producing a profit the company is able to retain those profits in the business
(increasing the owner’s equity) or they can be paid as dividends to shareholders. Paying
dividends reduces equity and therefore is not an expense
The Role of the Stock Exchange
Primary market
Not a physical market, but is a term used to describe when securities, such as stocks and
bonds, are created and sold. This enables public limited companies to raise new finance
from investors as they aren’t buying and selling these securities form each other, as they do
on secondary markets, they’re buying straight from the banks that are responsible for
underwriting the initial public offering.
Depending on the needs and the stage of the organisation there are a few ways in which it
can generate money from the primary market, and may all three may be utilised, including:
a public issue, rights issue, and preferential allotment.
- Public issue means that investors are able to purchase their shares directly from the
stock exchange.
- Rights issue means that investors get offered new shares at a discounted rate, this is
determined by the shares they already own.
- Preferential allotment means that only a select investors get offered shares at a
discounted rate, of which won’t be found in public issue.
Benefits include:
- A good way for organisations to generate capital at low costs
- A great way in which an organisation is able to reduce their risk with
diversification
- Isn’t effected by market fluctuations
- A highly liquid market due to the fact securities can be sold immediately
- Directly lead to foreign investors
Secondary Markets
Also known as the stock market, wherein investors trade directly amongst themselves and
with all the major indices, meaning: the New York Stock Exchange, NASDAQ, S&P 500 and all
global exchanges. The secondary market differs from the primary market in that securities
are traded without any involvement on behalf of the issuing companies.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller todd-200. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $13.62. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
77254 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now