Company Accounts

Mr Arthur

Aims of the Lesson

1. To discuss limited companies

2. Private Limited Companies

3. Public Limited Companies

4. Classes of shares1. Ordinary

2. Preference

Limited Companies

A limited company is an organisation whose capital is contributed by members purchasing shares

These members will have limited liability (if the company fails, they only lose their shares, not all their possessions!!)

Public Limited Companies Private Limited Companies

Public Limited Company The company name ends in plc Minimum of £50,000 share

capital Shares can be sold openly on the

Stock Exchange Accounts of the plc must be

lodged with the Registrar of Public Companies and published

Plc will pay corporation tax Shareholders receive dividends Outsiders can take ownership if

they take 50% of the shares

Private Limited Company Company name ends in the word limited

(Ltd) Ltd companies are often family

businesses with family members being the shareholders

Control of the company cannot be lost to outsiders as shareholders must permit the sale of shares

Minimum number of directors is 1 Fewer regulations governing ltd

companies Shareholders receive dividends Financial info must be filed with the

Registrar of Public – they may not however, have to submit full accounts

Aims of the Lesson

1. Classes of shares1. Ordinary

2. Preference

3. Cumulative

4. Participating Preference

5. Founder

Classifying Shares

Ordinary Shares Most common type of share No fixed rate of dividend Riskiest form of

shareholding Shareholder may lose

investment if company fails Receive dividend after all

other types of shareholders Carry voting rights 200,000 ordinary shares of

£1 each fully paid

Preference Shares Shareholders receive fixed

dividend (7%) Receive dividend before

Ordinary shareholders No voting rights

Classifying Shares

Cumulative Preference If dividend is not received the

arrears will be carried into the next year

Non Cumulative Preference Dividend is not carried into

next year

Participating Preference Shares In addition to a fixed rate of

dividend, a bonus may be paid Bonus is received after

dividend to other shareholders

Deferred or Founder Shares These are shares issued to

founders or managers of the company

Receive a dividend after all other shareholders

Aims of the Lesson

1. Raising Capital1. Debentures

2. Bank Overdraft

3. Trade Creditors

4. Leasing

5. Mortgages

Raising Capital Debentures

A plc can raise capital by offering debentures to the public

Debentures are loans and holders will receive a fixed rate of interest annually

Debentures will be bought back on a certain date

Not risky for the debenture holder as interest will be paid whether company is profitable or not

*Debenture Interest is an expense* Bank Overdraft

Where the bank allows the company to withdraw more than is in the plc’s account

*Current Liability*

Raising Capital

Trade Creditors Where the plc purchases goods and pays for them at a

later date *Current Liability*

Leasing Instead of purchasing fixed assets the company can hire

them over a period of time Mortgage

A long term loan usually used to purchase property Interest rate tends to be lower than a normal loan and may

fluctuate with the bank of England base rate

Aims of the Lesson

1. Hire Purchase

2. Factoring

3. Government Grants

4. Venture Capital

Raising Capital

Hire Purchase Where you buy a fixed asset and pay it up over a

number of months

Government Grants European Union or Government Grants can be

offered if your company is creating employment

Factoring Where you pay another company to collect debts

for you Factors will charge a fee

Raising Capital

Venture Capital If a business is new they may have

trouble finding investors A Venture Capitalist is someone who is

prepared to risk their own capital investing in companies

Business Angel = where you invest cause you think the business has potential

Forming a plc

Memorandum of Association The name of the company with plc

at end A statement that the company is

registered The objectives and range of

activities of the company A statement that member’s liability

is limited The amount of authorised share

capital The association clause ,

declaring that the first members take at least 1 share

Articles of Association This sets out the rules that

governs the internal running of the company

Rules regarding issue and transfer of shares

Rules regarding AGMs and meetings

Rules for keeping and auditing accounts

Rights of shareholders Powers and duties of directors

Solicitors lodge a Memorandum of Association and Articles of Association with the Registrar of Companies

Company Key Terms

Share Premium A share premium is created when shares are sold

for more than their face value Appears as a Capital Reserve in the Finance By

section of the Balance Sheet