In answering the questions of the case, the paper will first present a thorough view of the form of private limited companies in order to advise Emma. She will be told about the advantages and disadvantages of them, and why it should be opted over partnership. The second part of this paper will advise Chris and David on whether they can go against the articles written down in their Articles of Association. If they can, then how they can go about it and if not, then what other options and alternatives they have will be considered.
Private limited companies are often compared with either partnership which is one step behind or public limited companies which are a step forward. This means that if there are two or more people starting a company, they can either opt for partnership or a private limited company. They can also form a public limited company directly but it is ideal and normal to move to a plc from a private limited. Companies are usually started as private limited and then are gone public or ‘floated’ (Bendrey et al, 2004).
A private limited company or Ltd. is a form of organization which is a legal entity. It is not only a legal entity but a separate legal entity. This means that company is separate from the shareholders. In other words, the company exists in its own rights and not through the shareholder (Carysforth, 2004). This is further explained as the concept of Limited Liability which will be discussed in detail later.
Furthermore, the owners of the company are also the shareholders of the company (Carysforth, 2004). This means that in order to become owners, shares of the company need to be owned. The amount of shares held in the company can change with time and so can the number of shareholders, with no limit to them (Carysforth, 2009). Shares are sold to raise capital in a Ltd. The name suggests that shares are only sold privately and are not listed on the stock exchange. In order for a company to become a private limited company, many different legal requirements have to be met.
Each of the points mentioned above will be discussed in more detail in the following sections.
Legal Requirements
In setting up a private limited company, Emma, Chris and David must understand that there are more legal requirements than partnership and lesser requirements and paperwork than public limited companies. In becoming a private limited company, the following legal requirements have to be met (Carysforth, 2004):
A Memorandum of Association which has details about the company – its name, address, owners, liability, activities, objectives, etc – and an Articles of Associations that establishes how the company will be run by the directors must be produced before a company can become a limited one.
There must be at least two people starting the company. In the case of this salon, this requirement is met because there are three partners. However, what is important to understand is that each owner must own shares. They can also add more people as owners by selling shares to them.
The specifications which also include the Articles and Memorandum of Associations must be registered with the Registrar of Companies. The Registrar ensures the complete formation

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