AS-L21 — Limited Companies: Introduction
Understanding the structure, features, and accounting characteristics of limited companies.
Learning Objectives
By the end of this lesson students should be able to:
• understand the nature of limited companies
• distinguish between private and public limited companies
• understand limited liability
• identify sources of company finance
• answer examination-style questions
Concept Framework
What is a Limited Company?
A limited company is a separate legal entity owned by shareholders.
The company has its own legal identity separate from its owners.
Limited Liability
Limited liability means shareholders are only liable for the amount invested in shares.
Personal assets of shareholders are protected from company debts.
CORE RULES
| Feature | Limited Company |
|---|---|
| Ownership | Shareholders |
| Legal Status | Separate legal entity |
| Liability | Limited |
| Management | Directors |
| Profit Distribution | Dividends |
TRANSACTION LOGIC
Limited companies raise finance by issuing shares.
Shareholders invest capital and receive dividends from profits.
Because the company is legally separate, the business continues even if ownership changes.
Worked Examples
Example 1 — Share Capital
A company issues 50,000 ordinary shares of £1 each.
Share Capital:
50,000 × £1
= £50,000
Example 2 — Dividend Distribution
Profit available = £20,000
Dividend declared = £8,000
Retained Profit:
£20,000 − £8,000
= £12,000
Example 3 — Limited Liability
A shareholder invests £2,000 in shares.
Maximum loss:
£2,000
📌 Additional questions are available in the 🎯 Lesson wise resources, Module wise resources, Guess Question Papers + YouTube Explanation section.
Students should practise explanation questions regularly to improve examination performance.
Enrolled students may submit questions from recognised textbooks, past examination papers, or other academic material for expert clarification through the Student Doubt Support facility.
Structured Practice
Level 1 – Concept Check
Define limited liability
Define shareholder
Level 2 – Application Practice
Explain one advantage and one disadvantage of forming a limited company.
Level 3 – Examination Style Question
A company issues 80,000 ordinary shares of £1 each.
Calculate the company’s share capital.
(2 marks)
📌 Additional structured questions are available in the 🎯 Question Papers + YouTube Explanation section.
∗ Additional structured questions are available in the Question Papers and YouTube Explanation section. Students should practise regularly and review video explanations for procedural clarity.
Enrolled students may submit questions from recognised textbooks, past examination papers or other genuine academic material for expert clarification through the Student Doubt Support facility.
Proficiency Check
Learn → Unlearn → Relearn
1. Can you explain limited liability?
2. Can you distinguish ownership from management?
3. Can you calculate share capital accurately?
If unsure, revise the worked examples.
Detailed Activity Solutions
Solution to Level 3 question
Level 3 Answer:
Share Capital:
80,000 × £1
= £80,000
How This Topic Appears in the Examination
This topic commonly appears as:
• company theory questions
• share capital calculations
• advantages and disadvantages of companies
Examiners assess:
• understanding of company structures
• application of legal principles
• accurate calculations
Self-Assessment Checklist
I understand limited companies
I understand limited liability
I can calculate share capital
I can distinguish shareholders from directors
I can answer exam questions confidently
Continue Your Preparation
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PREMIUM RESOURCES
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GUESS PAPERS
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VIDEO ON DEMAND
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