Limited companies Cambridge IGCSE Business Studies (9–1) revision
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In plain words
A company is a business that the law treats as a person in its own right. It can own property, owe money and be taken to court, separately from the people who own it.
Those owners are shareholders, and the most they can lose is what they paid for their shares. That protection is limited liability.
6 things to know
- A limited company is incorporated: it has a legal identity separate from its owners, and it carries on even if the shareholders change.
- Limited liability means shareholders can lose only the money they invested, not their personal possessions.
- A private limited company (Ltd) cannot sell shares to the general public. It is often owned by a family or a few friends, who keep control.
- A public limited company (plc) can sell shares to the public on a stock exchange, so it can raise very large sums of capital.
- Drawbacks of a plc: it is expensive to set up, its accounts are open to the public, it can be taken over by anyone who buys enough shares, and the shareholders who own it are not the directors who run it.
- Shareholders receive a share of the profit, called a dividend.
Tips and tricks
- Public limited company does not mean public sector. A plc is owned by private shareholders. Only a business owned by the government is in the public sector.
- Limited liability protects the shareholders, not the company. The company must still pay its own debts.
It lands in your notebook with its questions as flashcards.
Limited companies: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
Who owns a limited company?
Shareholders own it. Directors are appointed to run it.
What is the main advantage of limited liability to a shareholder?
The most that can be lost is the money invested.
Which business can sell shares to the general public?
Its shares are traded on a stock exchange.
Which is a disadvantage of a public limited company?
Anyone can buy shares, including a rival.
A dividend is
It is the shareholders' reward for investing.
Quiz
5 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
3 questions, 8 marks. Write your answers on paper, then check them.
Limited companies
Cambridge IGCSE Business Studies (9–1) 0986 · 8 marks · papermunch.org
Name ______________________________ Date ______________
Define limited liability.[2]
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Shareholders are responsible for the debts of the company only up to the amount they have invested: they cannot lose their personal possessions.
Explain two differences between a private limited company and a public limited company.[3]
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A public limited company can sell its shares to the general public on a stock exchange; a private limited company cannot. A public limited company must publish detailed accounts and can be taken over more easily.
Explain one advantage and one disadvantage of a business becoming a public limited company.[3]
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Advantage: it can raise a large amount of capital by selling shares to the public. Disadvantage: the original owners may lose control, because anyone can buy shares and outsiders could take the company over.
Answers: Limited companies
- 1. Shareholders are responsible for the debts of the company only up to the amount they have invested: they cannot lose their personal possessions.
- 2. A public limited company can sell its shares to the general public on a stock exchange; a private limited company cannot. A public limited company must publish detailed accounts and can be taken over more easily.
- 3. Advantage: it can raise a large amount of capital by selling shares to the public. Disadvantage: the original owners may lose control, because anyone can buy shares and outsiders could take the company over.