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AC120 lecture 25

AC120 lecture 25. Nature of limited companies Final accounts of limited companies Source: Thomas, Chapters 26 and 27. Legal forms of organisation. Bodies sole Unincorporated bodies Sole traders or partnerships Bodies corporate Incorporated bodies Legal entity separate from the members

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AC120 lecture 25

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  1. AC120 lecture 25 • Nature of limited companies • Final accounts of limited companies • Source: • Thomas, Chapters 26 and 27

  2. Legal forms of organisation • Bodies sole • Unincorporated bodies • Sole traders or partnerships • Bodies corporate • Incorporated bodies • Legal entity separate from the members • can enter contracts into contracts in their own right • can sue and be sued • Includes companies • legal entity formed by registration under the Companies Acts

  3. Types of companies • Four types of companies • Liability limited by shares • Liability limited by guarantee • Unlimited liability companies • Companies limited by shares and guarantees • Limited liability • We are interested in companies whose liability is limited by shares

  4. Characteristics of companies limited by shares • Separate legal entity • Perpetual existence • Liability of shareholders limited to nominal value of their shares • Shareholders appoint directors to run the company • Each voting share carries one vote at shareholder meetings

  5. Classes of companies limited by shares • Public limited companies • Must be registered as PLCs with minimum authorised share capital of €50,000 • Purpose is the have greater access to capital through quotation on a stock exchange • Private companies • Shares not offered for sale to the general public • Suitable if retaining control is important to the shareholders

  6. Company documentation • A company is formed by sending documents and a fee to the Registrar of Companies • Memorandum of Association (Nature and purpose) • Articles of Association (Rules for shareholders) • Certificate of Incorporation • PLC also requires a Trading Certificate

  7. Types of capital in a company • Companies are financed by issuing shares (equity finance), obtaining loans or issuing debentures (debt finance), and retaining profits made during a financial period • Ordinary shares • Part ownership of the company • Each share entitles the holder to a vote on resolutions in meetings of ordinary shareholders • Ordinary shareholders take the biggest risk with regard to success or failure of the company • PLC shares may be traded any time on a stock exchange

  8. Types of capital in a company • Preference shares • No voting rights • Shareholders usually entitled to fixed return each year based on nominal value of the share • Shareholders have priority over ordinary shareholders with regard to dividends. Profit available for distribution to ordinary shareholders is the amount after preference dividend has been deducted • Lower risk to shareholders but lower return in good times than ordinary shareholders because return is usually fixed

  9. Variations of preference shares • Cumulative preference shares • Redeemable preference shares • Participating preference shares

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