Professional Documents
Culture Documents
1. Limited companies
– Proprietary companies – shares
– Public companies - shares
– Companies limited by guarantee – no shares
2. Unlimited companies
3. No-liability companies
4. Special companies
– Investment
– Banking
– Life insurance
LIMITED COMPANIES
• The shareholders in a limited company are
liable only to the extent of the amount
unpaid on their shares up to the full issue
price of those shares.
5
ADVANTAGES OF
THE CORPORATE
ENTITY
• Limited liability
• Broad source of capital
• Continuity of existence
• Ready transferability of shares
• Use of professional
management
DISADVANTAGES OF
COMPANIESCORPORATE
ENTITY
• Greater governmental regulation
• Separation of ownership and
management
• Can be costly
FORMING A COMPANY
• Application lodged to reporting body in
the domiciled country e.g. China
– Application requirements
• Replaceable rules and constitution
• Certificate of registration
• The prospectus
– Raising funds
ADMINISTERING A COMPANY
ADMINISTERING A COMPANY
• Shareholders are owners, but administration
rests with directors
• Duties of the board of directors include
– Protecting rights of shareholders
– Setting officers’ salaries
– Recommending and declaring dividends
– Authorising long-term borrowing, additional
share issues and major capital projects
– Reviewing the system of internal control
CATEGORIES OF EQUITY IN A
COMPANY
• The equity of a typical company split into 3
major categories:
– Share capital
• Fully or partly paid shares
• Ordinary or preference shares
– Retained earnings
• Or accumulated losses
– Other reserves
ACCOUNTING FOR SHARE
ISSUES
Number of choices available:
• Types of shares
– Ordinary shares
– Preference shares
• Payment for shares
– Payable in full on application
– Deposit payable on application and the remainder
on allotment
– Part payment on application, part on allotment,
and remainder in one or more instalments or calls
PRIVATE SHARE ISSUES (similar to
Debenture issues)
• Money may be raised privately by prospective
shareholders contributing funds to the
company
• Example – Two shareholders each contribute
$50,000 to buy shares in a proprietary
compan General Journal
yJul 1 Cash at Bank 100 000
Share Capital 100 000
(Cash contributed to the company by its
two shareholders)
PUBLIC SHARE ISSUE, PAYABLE
INFULL ON APPLICATION
• Shares issued via a prospectus
• Example – Sept 30: Brazil Ltd received applications
for 100,000 shares at an issue price of $10 each
General Journal
Sept 30 Cash Trust 1 000 000
Application 1 000 000
(Receipt of cash of $10 per share on
100 000 shares)
PUBLIC SHARE ISSUE, PAYABLE
INFULL ON APPLICATION
• If the number of shares applied for exceed the
number being issued excess funds must be
refunded
General Journal
Sept 30 Application X
Cash Trust X
(Refund excess application money to
unsuccessful applicants)
PUBLIC SHARE ISSUE, PAYABLE IN
FULL ON APPLICATION
• When the shares are allotted
– Application money becomes available for use
– Share capital is recognised
General Journal
Oct 1 Cash at Bank 1 000 000
Cash Trust 1 000 000
(Application money transferred to cash
account)