Leaving Cert Business 2001 (Ordinary level) Section 2, Question 2

General comments

This is a typical multi-part question from Section 2 of the paper. At ordinary level, the questions are sub-divided into five parts with limited information required in each case. This makes it easier to score maximum marks on a question, but it does require you to present your answers in a clear format. Chief Examiner's reports have indicated that the numbering and labelling of questions and parts of questions by exam candidates could be improved.

There is a high success rate at this level - nearly four out of five students receive an A, B or C grade, so a good general knowledge of business, combined with a concise answering style, will get you through.

Because the answers required are brief, there is plenty of time in the exam to read the paper carefully and even attempt an extra question (as one in five students do each year), but do make sure you have attempted all parts of each question.

Question A

Read the following information and answer the questions which follow: "The formation of a private limited company is governed by legislation."

(a) Name the law that governs formation of a limited company. (10 marks)

You merely have to name the relevant Act for 10 marks (no explanation required).

Companies Act 1963-1999

(b) Explain what is meant by a private limited company. (15 marks)

Three sentences are required at 5 marks each, to highlight key features.

A private limited company is owned by the shareholders, who may or may not be involved in the daily running of the business. Shareholders contribute capital to this corporate entity in order to develop the business venture.

There is always some risk involved but when profits are made they are distributed to the shareholders in the form of dividends.

(c) Outline three reasons why a business would want to become a private limited company. (15 marks)

To "Outline" implies a short summary of important features with detail. In this case, trhee reasons are required at 5 marks each.

1. By the company becoming a separate legal entity, the shareholders have the protection of limited liability (i.e. they only risk losing what they invested in the venture).

2. The business will now be able to raise additional finance by the issuing of shares.

3. There is continuity of existence, i.e. the company doesn't close if a shareholder dies.

(d) Distinguish between Articles of Association and Memorandum of Association. (15 marks)

To "Distinguish" means to point out the differences. Two substantial points of information on Articles (5 marks plus 3 marks).

Articles of association govern the legal internal relationship (rules, constitution) between the company and its members. It contains the regulations for the running of a company and the rights and duties of its members, i.e. procedures for share transfers, meetings, election of directors etc.

Two substantial points of information on Memorandum (5 marks plus 2 marks).

Memorandum of Association is a legal document which must be filed with the Registrar of Companies before a company can be incorporated. It governs the external relationship between the company and third parties, i.e. it contains the name of the company, registered address, objectives of the company, statement of share capital etc. • Students frequently get these two terms mixed-up. Note that in this exam a correct complete reversal of definitions would still get 8 marks.

(e) People in a company include "shareholders", "directors", "auditors" and a "company secretary". Explain the role of any two of these people. (20 marks)

You are asked to explain the role (i.e. what part they play in the company)

1. A shareholder is an individual (or institution) who invest (contribute) funds to a company in return for shares. He/she receives dividends if the company makes a profit.

2. A director is an official of a company elected by the shareholders at the company's AGM. He/she is given certain responsibilities in the running of the company.

Only two of the people mentioned are required.

3. Auditors are accountants who are appointed to check the accuracy of the company accounts. They present an annual report to the shareholders on whether the accounts present a true and fair view of the company.

4. A Company Secretary is an officer of a company with responsibility for maintaining the company's share register. The company secretary notifies shareholders of the AGM.

Two points required in each case at 5 marks each.