WebDesPix Ltd case study questions. What does the name WebDesPix Ltd tell you about the ownership of the company?

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WebDesPix Ltd case study questions

  1. What does the name WebDesPix Ltd tell you about the ownership of the company?

It tells us that it is a private limited company; this means that it is in the private sector and it must have the letters ‘Ltd’ after its name. The main features of a private limited company include:

  • It is owned by the shareholders.
  • It is controlled by the board of directors.
  • It is managed by appointed managers.
  • Finance can be gained by borrowing from banks or selling shares.
  • The profits go to the shareholders of the company, in the form of dividends.

  1.  Give (2 or more) reasons why they may have decided on this type of company?

This type of business is more expensive to set up than a sole trader or a partnership, however:

  • It carries less financial risk for the owners as they have limited liability, which means that if the company goes bust, they only lose the amount of money that they invested in the company and not their personal possessions.
  • Limited companies are also incorporated which means that the company has a separate legal identity from its owners. Which means that it is the company that can be sued or sue, not the owners.
  • It also gives the company greater continuity because its existence is not ended by the death or retirement of its owners.

  1. Tom and Dee are shareholders.  What does this mean?
  • It means that Tom and Dee are the people who invest money in the company by buying shares, and are therefore called shareholders. It also means that they are the owners of the company.
  • By buying shares in the company Tom and Dee are entitled to a share of the profits known as dividend. How much dividend a shareholder receives depends on how well the company is performing, the type of share they own, and the number of shares they own.
  • This also means that as they are shareholders they can elect people to the board of directors to represent their interest and be responsible for the long term strategy of the company. The directors will then appoint managers to be responsible for the day-to-day running of the company. Also, some managers may also be directors and are known as executive directors. In a private limited company the major shareholders, board of directors and managers may all be the same people.
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  1. They have an overdraft facility.  Explain how an overdraft works and say what they might use if for.

An overdraft is when a business draws more money from its bank account than it currently has in the account. It has permission from the bank, which sets an agreed limit called an overdraft limit.

Interest is payable on the overdraft and this is calculated on a daily basis. An advantage of an overdraft is that money is only borrowed when needed; this means that interest is only paid when the bank account is overdrawn.

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