Company Accounts

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Company Accounts

  1. 1. Company Accounts Mr Arthur
  2. 2. Aims of the Lesson <ul><li>To discuss limited companies </li></ul><ul><li>Private Limited Companies </li></ul><ul><li>Public Limited Companies </li></ul><ul><li>Classes of shares </li></ul><ul><ul><li>Ordinary </li></ul></ul><ul><ul><li>Preference </li></ul></ul>
  3. 3. Limited Companies <ul><li>A limited company is an organisation whose capital is contributed by members purchasing shares </li></ul><ul><li>These members will have limited liability (if the company fails, they only lose their shares, not all their possessions!!) </li></ul><ul><li>Public Limited Companies </li></ul><ul><li>Private Limited Companies </li></ul>
  4. 4. Public Limited Company <ul><li>The company name ends in plc </li></ul><ul><li>Minimum of £50,000 share capital </li></ul><ul><li>Shares can be sold openly on the Stock Exchange </li></ul><ul><li>Accounts of the plc must be lodged with the Registrar of Public Companies and published </li></ul><ul><li>Plc will pay corporation tax </li></ul><ul><li>Shareholders receive dividends </li></ul><ul><li>Outsiders can take ownership if they take 50% of the shares </li></ul>
  5. 5. Private Limited Company <ul><li>Company name ends in the word limited (Ltd) </li></ul><ul><li>Ltd companies are often family businesses with family members being the shareholders </li></ul><ul><li>Control of the company cannot be lost to outsiders as shareholders must permit the sale of shares </li></ul><ul><li>Minimum number of directors is 1 </li></ul><ul><li>Fewer regulations governing ltd companies </li></ul><ul><li>Shareholders receive dividends </li></ul><ul><li>Financial info must be filed with the Registrar of Public – they may not however, have to submit full accounts </li></ul>
  6. 6. Aims of the Lesson <ul><li>Classes of shares </li></ul><ul><ul><li>Ordinary </li></ul></ul><ul><ul><li>Preference </li></ul></ul><ul><ul><li>Cumulative </li></ul></ul><ul><ul><li>Participating Preference </li></ul></ul><ul><ul><li>Founder </li></ul></ul>
  7. 7. Classifying Shares <ul><li>Ordinary Shares </li></ul><ul><ul><li>Most common type of share </li></ul></ul><ul><ul><li>No fixed rate of dividend </li></ul></ul><ul><ul><li>Riskiest form of shareholding </li></ul></ul><ul><ul><li>Shareholder may lose investment if company fails </li></ul></ul><ul><ul><li>Receive dividend after all other types of shareholders </li></ul></ul><ul><ul><li>Carry voting rights </li></ul></ul><ul><ul><li>200,000 ordinary shares of £1 each fully paid </li></ul></ul><ul><li>Preference Shares </li></ul><ul><ul><li>Shareholders receive fixed dividend (7%) </li></ul></ul><ul><ul><li>Receive dividend before Ordinary shareholders </li></ul></ul><ul><ul><li>No voting rights </li></ul></ul>
  8. 8. Classifying Shares <ul><li>Cumulative Preference </li></ul><ul><ul><li>If dividend is not received the arrears will be carried into the next year </li></ul></ul><ul><li>Non Cumulative Preference </li></ul><ul><ul><li>Dividend is not carried into next year </li></ul></ul><ul><li>Participating Preference Shares </li></ul><ul><ul><li>In addition to a fixed rate of dividend, a bonus may be paid </li></ul></ul><ul><ul><li>Bonus is received after dividend to other shareholders </li></ul></ul><ul><li>Deferred or Founder Shares </li></ul><ul><ul><li>These are shares issued to founders or managers of the company </li></ul></ul><ul><ul><li>Receive a dividend after all other shareholders </li></ul></ul>
  9. 9. Aims of the Lesson <ul><li>Raising Capital </li></ul><ul><ul><li>Debentures </li></ul></ul><ul><ul><li>Bank Overdraft </li></ul></ul><ul><ul><li>Trade Creditors </li></ul></ul><ul><ul><li>Leasing </li></ul></ul><ul><ul><li>Mortgages </li></ul></ul>
  10. 10. Raising Capital <ul><li>Debentures </li></ul><ul><ul><li>A plc can raise capital by offering debentures to the public </li></ul></ul><ul><ul><li>Debentures are loans and holders will receive a fixed rate of interest annually </li></ul></ul><ul><ul><li>Debentures will be bought back on a certain date </li></ul></ul><ul><ul><li>Not risky for the debenture holder as interest will be paid whether company is profitable or not </li></ul></ul><ul><ul><li>*Debenture Interest is an expense* </li></ul></ul><ul><li>Bank Overdraft </li></ul><ul><ul><li>Where the bank allows the company to withdraw more than is in the plc’s account </li></ul></ul><ul><ul><li>*Current Liability* </li></ul></ul>
  11. 11. Raising Capital <ul><li>Trade Creditors </li></ul><ul><ul><li>Where the plc purchases goods and pays for them at a later date </li></ul></ul><ul><ul><li>*Current Liability* </li></ul></ul><ul><li>Leasing </li></ul><ul><ul><li>Instead of purchasing fixed assets the company can hire them over a period of time </li></ul></ul><ul><li>Mortgage </li></ul><ul><ul><li>A long term loan usually used to purchase property </li></ul></ul><ul><ul><li>Interest rate tends to be lower than a normal loan and may fluctuate with the bank of England base rate </li></ul></ul>
  12. 12. Aims of the Lesson <ul><ul><li>Hire Purchase </li></ul></ul><ul><ul><li>Factoring </li></ul></ul><ul><ul><li>Government Grants </li></ul></ul><ul><ul><li>Venture Capital </li></ul></ul>
  13. 13. Raising Capital <ul><li>Hire Purchase </li></ul><ul><ul><li>Where you buy a fixed asset and pay it up over a number of months </li></ul></ul><ul><li>Government Grants </li></ul><ul><ul><li>European Union or Government Grants can be offered if your company is creating employment </li></ul></ul><ul><li>Factoring </li></ul><ul><ul><li>Where you pay another company to collect debts for you </li></ul></ul><ul><ul><li>Factors will charge a fee </li></ul></ul>
  14. 14. Raising Capital <ul><li>Venture Capital </li></ul><ul><ul><li>If a business is new they may have trouble finding investors </li></ul></ul><ul><ul><li>A Venture Capitalist is someone who is prepared to risk their own capital investing in companies </li></ul></ul><ul><ul><li>Business Angel = where you invest cause you think the business has potential </li></ul></ul>
  15. 15. Forming a plc <ul><li>Memorandum of Association </li></ul><ul><ul><li>The name of the company with plc at end </li></ul></ul><ul><ul><li>A statement that the company is registered </li></ul></ul><ul><ul><li>The objectives and range of activities of the company </li></ul></ul><ul><ul><li>A statement that member’s liability is limited </li></ul></ul><ul><ul><li>The amount of authorised share capital </li></ul></ul><ul><ul><li>The association clause , declaring that the first members take at least 1 share </li></ul></ul><ul><li>Articles of Association </li></ul><ul><ul><li>This sets out the rules that governs the internal running of the company </li></ul></ul><ul><ul><li>Rules regarding issue and transfer of shares </li></ul></ul><ul><ul><li>Rules regarding AGMs and meetings </li></ul></ul><ul><ul><li>Rules for keeping and auditing accounts </li></ul></ul><ul><ul><li>Rights of shareholders </li></ul></ul><ul><ul><li>Powers and duties of directors </li></ul></ul>Solicitors lodge a Memorandum of Association and Articles of Association with the Registrar of Companies
  16. 16. Company Key Terms <ul><li>Share Premium </li></ul><ul><ul><li>A share premium is created when shares are sold for more than their face value </li></ul></ul><ul><ul><li>Appears as a Capital Reserve in the Finance By section of the Balance Sheet </li></ul></ul>

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