Business Activity and

Influences on Businesses
Chapter 4
Limited Companies and Multinationals
Features of Limited Companies 1 of 2
• Limited companies are incorporated; they have separate legal identity from their
owners and thus they can own resources, form contracts, employ people, sue
and be sued in their own name; they would continue to exist if owners died.
• Limited companies raised capital by selling shares (some stake of ownership).
• The person who buy the shares are shareholders and joint owners of the
business. The shareholders may be individual or company or institution (such as
venture capitalist)
• The shareholders have limited liability. This is important for owners because
they can not be forced to use up their own money to pay the company’s debt.
They can only lose the amount invested in the business. It is easier to raise
additional finance due to the limited liability status which give financial
protection for owners.
Features of Limited Companies (2 of 2)
• Shareholders do not make day-to-day decisions and running the company unless they are
directors.
• In the Annual General Meeting, shareholders have to elect the board of directors who run the
company and directors are accountable to shareholders; the board is led by a chairperson.
• In case of large companies, BODs appoints the CEO and management team to run the
company and BODs take the supervisory role, thus CEO reports to the BODs.
• Shareholders have the voting right on significant decisions at AGM.
• Shareholders with more shares will have more control.
• Shareholders are subject to capital gains and dividend payments as residual claimants on a
firm’s profit.
• Limited companies pay corporation tax while sole traders and partnership pay income tax.
• Follow a legal procedure to form the limited companies (e.g. Myanmar Companies Law 2017
in Myanmar)
Forming a Limited Company
• Must have a minimum of two members (shareholders), but there is no upper limit.
• Memorandum of association and articles of association must be sent to the
Registrar of Companies to form the company limited.
• Memorandum sets out the constitution and gives detail about the company such as
name, address, objectives, nature of activities, amount of capital and numbers of
shares.
• Articles deal with the internal running of the company such as rights of the
shareholders, procedures for appointing directors, director term, timing and
frequency of meetings, arrangement for auditing, procedure for the issuing of
shares.
• After inspecting MOA and AOA, the company registration office would issue
Certificate of incorporation to trade as a limited company.
• Two common types of limited companies are private limited company and public
limited company.
Private Limited Company
• Incorporated business that raise capital from the sales of shares to private
individuals like family members or closed friend.
• The directors tend to be majority shareholders and are involved in the running
of the business.
• Limited means the liability of the shareholders are limited to the capital
originally invested, the personal assets of the shareholders are protected.
• Shares can only be transferred privately. All shareholders must agree on the
transfer and they can not be advertised for sale. Shares can not be traded on
the stock market.
• Mostly small or medium sized, but small minority are large
• Family business owned by family members or close friends
• Business names end in Limited or Ltd
Examples of Private Limited Companies in
Myanmar
• Air Bagan
• Asia World
• Eleven Media Group
• Mingalar Co Ltd.
• Red Link Communications
• Wave Money
• Peace Myanmar Group Co., Ltd.
• Max Energy Company Ltd.
 Advantages and Disadvantages of Private Limited Companies
Advantages
• Shareholders have limited liability.
Shareholders have no personal responsibility for
the debts of the business. They can not be forced
to pay the debts of the company in case of
businesses fail to pay its debts. They can only lose
the original amount of investment. Limited liability
status can attract more investors. Shareholders
have less risk than sole traders and partners.
• More capital can be raised since shares can be
sold to a large number of people. The business
could expand more rapidly.
• Control cannot be lost to outsiders. The
founders are able to keep control of it as long as
they do not sell so many shares to other people.
• Business continues if one of shareholder dies due
to its separate legal status.
• Has more status among public and media.
Disadvantages
• There are significant legal matter to set up a limited
company; Memorandum of association and Articles
of association and must be prepared and sent to the
registrar of company. It costs money and take time.
• Takes time to transfer shares to new owners since
the shares in private limited company cannot be sold
to anyone else without the agreement of
shareholders. This rule makes some people reluctant
to invest in private limited company.
• Cannot raise huge amounts of money like Public
limited company since the company cannot sell its
shares to general public.
• Financial information has to be made public. This
would allow more information about company to be
known to other people including its competitors.
They can take advantage on it. Publication costs
money for the business.
Public Limited Companies (1 of 2)
• Limited companies whose shares are freely traded by the public on the stock
exchange; any person or organization can buy shares in PLC.
• Business names end in PLC
• Larger than private limited companies
• Prospectus must be prepared to advertise about the company to potential
investors.
• It also invites investors to buy shares before flotation (the process of offering a
company’s shares for sale on the stock market for the first time).
• Prospectus must be examined by lawyers to ensure that it is not presenting any
misleading information; it must be filed with the Stock Exchange Commission.
Public Limited Companies (2 of 2)
• Going public (selling shares to the public) can be expensive since different costs
are incurred;
• Legal cost: Prospectus must be examined by lawyers not to present any misleading
information.
• Printing and distribution cost: Thousands of copies of Prospectus must be printed and
circulated.
• Commission on service: The company asks an investment bank to help share application
process.
• Underwriter fees: This is the fees paid to an investment bank who would buy up any
unsold shares. (underwriting is the process through which an investment bank acts as a
broker between the issuing company and the public.)
• Advertising and administrative expenses
• Must have stated minimum capital (GBP 50000 in UK)
Examples of Public Limited Company in
Myanmar
Listed Companies in Yangon Stock Exchange
• First Myanmar Investment Public Co., Ltd. (FMI) (2016)
• Myanmar Thilawa SEZ Holdings Public Co., Ltd (MTSH) (2016)
• Myanmar Citizens Bank Ltd (MCB) (2016)
• First Private Bank Ltd. (FPB) (2017)
• TMH Telecom Public Co., Ltd. (TMH) (2018)
• Ever Flow River Group Public Co., Ltd (EFR) (2020)
• Amata Holding Public Co., Ltd (AMATA) (2021)
 Advantages and Disadvantages of PLC
Advantages
• Shareholders have limited liability.
• Very large amount of capital can be raised
since there is no limit to the number of
shareholders.
• PLCs can exploit economies of scale since it
can increase its scale of production and
distribution because of larger capital and
market.
• Shares can be bought and sold very easily. This
would be attractive for potential investors.
• May have a very high profile in the media and
it is easier to find suppliers and financiers.
• Separate legal identity; there is continuity if
one of the shareholders die.
Disadvantages
• Setting up costs can be very expensive and take times due
to its legal formalities. The legal requirements for the
publication of information about the company is much
stricter than it is for private limited companies.
• more regulatory control to protect the interest of the
shareholders, for example publications of annual reports.
More financial formation has to be made public.
• Selling shares to public is expensive.
• Outsiders can take control by buying shares. There is
danger of hostile takeover by another company since any
other company can buy the shares in the company.
• Managers may take control rather than owners since
there are a large numbers of shareholders so that they
cannot involve in day-to-day business operation and
decision making. They can only vote to elect directors
who appoint the management teams for the company.
 Test your understanding
Which document would be issued to a limited company giving it permission to trade.
A. Memorandum of association C. Certificate of incorporation
B. Articles of association D. Prospectus

Which item of information would be contained in the memorandum of

association?
A. Rights of shareholders C. Price of the shares to be issued
B. Name of the company D. Procedures for appointing shareholders
 Test your understanding
Selling shares to the public for the first time to raise capital for a company is called
A. Flotation C. Joint venture
B. Prospectus D. Venture capital

Which of the following is a disadvantage of a private limited company?

A. Shareholders have limited liability
B. Owners have to share the profits with outsiders
C. It can take time to transfer shares to new owners
D. Control could be lost to outsiders
Past Questions Extract (Edexcel)

(1) Why is limited liability important to shareholders?

(2) Apart from limited liability, state three other advantages of forming a private limited company.
(3) Evaluate whether TADS should consider becoming a private limited company. You should use
the information provided as well as your own knowledge of business. (12/20/paper1/Edexcel)
(4) Explain one reason against Covers-up Ltd becoming a public limited company.
(5) State two advantages for HTL of changing to a public limited company
(6) State two disadvantages for HTL of changing to a public limited company, other than having to
publish its accounts.
(7) Analyze why having to publish accounts could be a disadvantage for HTL if it changed to a
public limited company.
(8) Define the term multinational business. (1/19/papre2/Edexcel)