FLK1 · Multiple-choice practice

FLK1 Business Law — Question 6

Question

Anna has inherited some money from a distant relative and is keen to use it to invest in a new business venture. She has located a startup, set up as an Ltd that seems worth investing in. The business is offering shares in return for her investment. Which of the following statements best describes what it will mean for Anna to become a shareholder in a private limited company?

She will be consulted on key decisions and be paid a salary.
She will be consulted on all key decisions and potentially receive dividends.
She will be involved in the day to day running of the company and be paid a salary.
She will be involved in certain key decisions and potentially receive dividends.
She will be one of the owners of the company and potentially receive dividends, but without the ability to influence the day to day running of the company.

Answer and explanation

Correct answer: E. She will be one of the owners of the company and potentially receive dividends, but without the ability to influence the day to day running of the company.

Becoming a shareholder in a private limited company means that Anna will own a portion of the company’s shares, and will have the potential to receive dividends if the company makes a profit and decides to distribute them to its shareholders. However, as a shareholder, she will not be involved in the day-to-day running of the company, and will not have the ability to influence key decisions unless she holds a significant proportion of the shares or has been granted special voting rights. The Companies Act 2006 sets out the rights and obligations of shareholders in private limited companies, and the articles of association of the company will provide further detail on specific voting rights and procedures.

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