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Unit 6 - Financial Accounting P2
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- PEARSON (PEARSON)
Unit 6 - Financial Accounting P2 P2 Explain how a limited company’s financial statements are influenced by the legal and regulatory framework.
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Abdulalah Al-JoboreUnit 6: Financial Accounting
P2
P2 Explain how a limited company’s financial statements are influenced by
the legal and regulatory framework.
Private and Public Limited company
It is necessary for any limited company to register within the Companies House before it is setting up
the business to operate. Limited company owned by its shareholders. Limited companies may be
limited by share or by guarantee. In order to establish your own limited company you have to send
off specific legal paperwork (which are known as The Memorandum and the Article of Association)
to the Companies House. Therefore the Companies House can agree with plan of your company and
will send you a paperwork called ‘certificated of incorporation’ which allow you to start trading as
limited company.
Once the business established as a limited company, the business have to states the maximum
amount of shares it can sell to other people in order to increase the capital for the business, this
known as a the ‘authorised capital’. Therefore, it’s the registrar’s job to agree to the authorised
capital before the company become a limited company, and also it is important for any limited
company to send their account each year to the Company House, so the registrar can check what the
company doing. Moreover, the limited company divide into two main companies:
Private limited companies
The businesses that are operating in the private limited company are usually smaller than these
operating as public limited companies, most of the time they are family businesses. Within these
types of company you cannot sell or trade on stock exchange. Usually you can buy shares within the
permission of the Board of Directors. Private limited companies have opportunity to raise more
capital when selling their shares than the unlimited liability business. Shareholders in this type of
business will have a legal protection of limited liability. For example, Jones Haulage Ltd is a private
limited company between friends and family, therefore, all of the owners of this business will have a
legal protection of limited liability. In addition, in private limited company such Jones Haulage Ltd
you cannot sell more that 51% of the business shares as you will not have the right to take any
decisions for the business. Therefore, the shares in Jones Haulage Ltd will be sold between the
friends and family or any other trusted people who are related to the business’s owners.
Public limited companies
Public limited campiness are usually offer for public to buy their share stock and become one of their
shareholders. One of the advantage of these businesses is the liquidity, as these businesses are
selling their shares and as a reward of this, they get large amount of capital very quickly. However
there are some disadvantages, the originals shareholders can lost their control over their business,
as there will be a number or external shareholders to the company directors that will be
accountable. For example, Marks & Spencer is a public limited company, and one of the major British
Multinational retailer headquartered in the UK. It is owned by many shareholders, as this company
sell their shares to members of public by floating the frim on the Stock Exchange. Therefore, they
have to follow strict rules and laws, and also abide the regulation of the stock exchange too.
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