Business Unit 1 Revision Cards

Unit 1 Revision - 1.7 Choosing the right legal structure continued...

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A company is a business organisation which has its own legal identity. 

It has limited liability (an advantage over sole traders and partnerships.) A company is responsible for the money it owes but the personal possessions of its owners are safe. It is essential for a company to have limited liability so that it is able to reaise money by selling shares. If this wasn't the case, investors would be less likely to buy shares becasue of the risk of losing their personal possessions.

A company is owned by shareholders. A shareholder is an investor in and one of the owners of a company. The more shares they own, the more of the company belongs to them.

By investing in a company, shareholders become the owners of the business. If the business is successful, the value of the shares would increase.

The part of the profits that is paid out to the shareholders is called the dividends.     

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Private limited companies have 'ltd' after their names. They are owned by shareholders and the owners can place restrictions on who the shares are sold to in the future.

For example, many but not all private limited companies are owned by families who limit the sale of shares to other members of the family: this makes sure that 'outsiders' do not become involved.

Owners of shares in private limited companies cannot advertise their shares for sale: they have to sell them privately.

Public limited companies have 'plc' after their names. They are also owned by shareholders. They are different to private limited companies becasue restrictions cannot be placed on the sale of shares; they can be sold to whoever they like. Public limited companies unlike private limited companies can be advertised in the media. Most companies become public because they want to advertise their shares to the public and raise large sums of money in the process. They are bigger than most private limited companies.

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