O Level Notes : Accounts - Limited Liability Companies
Limited Liability Companies
There are two types of companies:
- Its memorandum should declare it as public company
- Authorized share capital of at least 50,000 pounds.
- Should have at least 2 members.
- Name must end with “public limited company.”
- Public company can but may not offer its shares in the stock market for sale.
- These are small scale companies
- One or more partners
- Authorized capital of less than 50,000 pounds.
- Cannot offer its shares for sale to public at large.
Consider the following important terms relevant to this chapter :
Directors: people responsible for the day to day affairs of the company . directors are elected by stakeholders.
Dividends: share holders of limited companies obtain their reward in form of share of profits called dividends.
These get an agreed percentage rate of dividends before the ordinary hare holders receive anything.
There are further two types of preference shares:
- NON cumulative preference shares:
They can receive a dividend up to an agreed percentage each year. If the entire agreed amount is not paid the short coming cannot be carried down to the next year.
- Cumulative preference shares
Can receive agreed percentage of dividends but the balance can be carried down to the next years.
These receive remainder of total profits available for dividends.
Authorized share capital
It is also known as nominal capital. This is the total share of capital the company can issue to its share holders.
issued share capital:
Total of authorized capital actually issued to the share holders.
Called up capital :
Where part of amount payable on each issued share is asked for, the total amount asked for is termed as called up capital.
Total amount to be received in future, relating to issued share capital , but which has not been asked for.
Calls in arears
Total amount for which payment has been asked for but has not been made by the share holders.
Paid up capital
Total amount of share capital, which has been paid by the share holders.
When a limited company receives money on loan, it issues certificates to the lender. Debentures also show the rate of interest payable. Debentures make sure that if the company starts to liquefy then the debenture holders can legally take over specified assets to compensate for the money they lent.
Appropriation accounts are made for limited companies to check the current financial situations. The appropriation account shows how the profits are to be used. This isn’t very similar to the appropriation account you learnt about in the chapter: partnerships.
Transfer to reserve account
Profit balance brought down
Net profit of the year
Note : balance c/d to the next year shows the profits which are in excess and have not been used.