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Limited Company Accounts

Limited Company Accounts. Learning Outcomes. Characteristics of a limited company Advantages of a limited company Differentiate between ordinary shares and preference shares; shares and debentures Distinguish between authorised, issued, called up and paid-up capital

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Limited Company Accounts

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  1. Limited Company Accounts

  2. Learning Outcomes • Characteristics of a limited company • Advantages of a limited company • Differentiate between ordinary shares and preference shares; shares and debentures • Distinguish between authorised, issued, called up and paid-up capital • Issue of shares at par, at premium and at discount

  3. Characteristics of a limited company • Private company and public company • 2-50 persons / 2 to unlimited • Limited liability – limited by shares • Legal entity – can sue or enter into contracts in its own name

  4. Advantages • Limited liability • Can raise capital easily • Can acquire the control of the company by buying shares of the company • Can enjoy economies of scale • Can enjoy the benefit from good management

  5. Ordinary shares Variable rate of dividend Voting rights in proportion to the number of shares held In liquidation, shareholders are the last to get back their money Preference shares Fixed rate of dividend Dividend is paid first No voting rights In liquidation, shareholders get back their money before ordinary shareholders Shares

  6. Shareholders Dividends Fixed / variable rate of return Share of profit Voting rights Take part in management In liquidation, shareholders can get back their money after the payment to debenture holders and other creditors Creditors Debenture interest Fixed rate of return No sharing of profit No voting rights Cannot take part in management In liquidation, debenture holders get their money first Shares and Debentures

  7. Terms 1. Authorised share capital - Upper limit of shares that can be issued X nominal value 2. Issued share capital - number of shares that have actually been issued X nominal value 3. Called up capital - the total amount asked for on all the issued shares 4. Uncalled capital - the total amount that has not yet been asked for and will be received in future

  8. Terms 5. Paid up capital - the total amount of share capital which has been paid by shareholders 6. Calls in arrears - the total amount that has been asked for but has not yet been paid by shareholders

  9. Issue of shares 1. Issue at par • Issued price = Nominal value 2. Issued at premium • Issued price > Nominal value • Share premium = Issued price – Nominal value 3. Issued at discount • Issued price < Nominal value • Discount on shares = Nominal value – Issued price

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