Introduction to Accounts of Limited Company

A limited company is a business structure that has a seperate legal entity to that of its owners,who are
also known as the shareholders of the company.Limited Companies are also known as Limited Liability
Companies because the owners are reponsible only for the amount that they have invested into the
business.In a way,Limited liability refes to the only liability or amount a shareholder has to lose if the
company closes down and cannot pay off its debts,that is the amount invested to run the organisation.

As a result,most business organisations prefer to become a Limited Company because this is a type of
organisation that can be formed to surpass most of the threats and weaknesses of that of a soletarder
and partnership;such as the unlimited liability and survival of the business and the extreme difficulty to
raise capital for the business.

In the UK,there are two types of limited companies termed as :

(1)Private Limited Company and
(2)Public Limited Companies

Private Limited Companies

The protection that arises from forming a company is,therefore,considerable/notable.Firms can achieve
this protection when the owner creates a private limited company.This refers to small and medium-
sized businesses which are normally owned by a few shareholders.Private limited companies are often
identified by the word 'Limited' or 'Ltd' and this informs stakeholders that the business has this legal
form.

A privately held company is owned by its founder,management,a group of private investors including
relatives,friends and employees.Normally,a private limited company is smaller in size compared to a
public company and therefore it cannot issue its shares on the market.This means that shares cannot be
sold to the public and existing shares can be sold only with the accordance of other shareholders.

In addition to this,in order to set up such an organisation,businessses will have to follow certain
appropriate legal formalities.Like other business structures.a private limited company also enjoys certain
benefits and in some cases it has to face certain drawbacks.

Benefits of PVte

Shareholders enjoy limited liability-that is,they lose up to the amount that they have invested in
the company and not the total holdings.

Legal Personality-Companies are perceived to be having a legal seperate identity from that of its
owners.For example,if a toy company sells a new toy for kids aged between 5-10 years old and
the product/good is found to be dangerous,then the company itelf can be taken to court and
not the owners,as would be the case for a soletrader and a partnership.
 Continuity
In case of death of the owner or director,the company will still continue to exist and that the
ownership will continue through the legacy of the shares.

Adequate capital is able to be raised by selling shares to family,friends and employees.

The former owner still the capability to maintain control in the organisation.

Drawbacks

Some legal formalities have to be followed while setting up the company.

Limited capital/fund since shares cannot be sold on the open market.

Existing shareholders face difficulty to sell their shares.

End-of-year accounts have to be sent to Companies House for inspection-this is an indication of

that there is less privacy over the financial affairs of the company.

The second type of company is the Pulic Limited.

Such organisations often use the word 'PLC or 'inc.' inorder to distinguish themselves from privately held
companies and they tend to be larger businesses.A clear definition of this could be that it has all the
legal right to sell its shares to members of the public and their shares are quoted on the stock exchange
whereby the public has a tendency to buy the shares in the first instance itself.

Hence,pblic limited companies can raise a large number of capital for the business as it can sell to an
unlimited number of members and existing shareholders have the advantage to sell their shares quickly
if they wish to.

It is the most used form of legal organisation for really large businesses,such that they have access to a
significant amunt of capital for further expansion.Public companies are severely regulated and are
required by law to publish their true and fair financial position so that investors can determine the true
value of its shares.Public limikted companies are comprised of its advantages and disadvantages.

Advantages of PLC

Limited liability

Seperate legal identity

 The company will still continue to operate in the event of the death of the shareholder

Access to further capital-flexibility of buying and selling of shares allows for more investment in
PLCs

Gives the company a prestigious profile

Disadvantages

The company has to abide by legal formalities when forming.

Since it is listed on a stock exchange,the company is likely to have a larger number of

shareholders,to whom company directors will be accountable.

Annual publication of financial reports and accounts,therefore greater public inspection of the
company's financial performance and reports.

Public companies are required to compute for the costs of business consultants and financial
advisors when setting up such a business.

Threat of takeover as shares are quoted on the stock exchange.