Principles of Accounts
Limited Company Accounts
A company is an association of persons having separate legal existence. As a result shareholders can only loose the
value of their shares and not are liable for the debts of the business from their own assets. A Board of Director
manages a company but it is owned by shareholders. Limited Companies came into existence due to the
disadvantages of Partnership especially partners having unlimited liability.
Differences between Partnership and Limited Companies
Partnership Limited Companies
Owners are called Partners Owners are called Shareholders/members
Owners have unlimited liability Owners have limited liability
Do not sell shares Sell shares
Owners invest money and other assets as capital Owners invest in shares as their capital
Operates under the guidance of a Partnership Operates under the guidance of the Articles of
Agreement organization/Certificate of formation
Features
Incorporation – creation by law. Perpetual existence -shareholders may change
Limited liability. but the company goes on.
Separate legal entity. Transferability of shares – shares in this
Common Seal – company has special business can be transferred easily.
documents used to prove that the business is
legal.
Advantages of Limited Companies
1. The liability of the shareholders is limited.
2. Shares in the business can be transferred easily.
3. Owner is shared by many people.
Disadvantages of Limited Companies
1. Formation costs are usually very high.
2. Company accounts must be available to the public.
3. Profit distribution is subject to some restrictions. Not all profits are distributed to shareholders.
Types of Companies
Private Public
2 – 50 members 7 minimum and no maximum members
Issue shares to family members and friends Issue share to the public
Have the abbreviation ‘ltd” attached to its name. Have the abbreviation ‘plc” attached to its name.
Does not have to publish its financial statements Have to publish its financial statements annually
annually
The authorized share capital is $50 000 or less The authorized share capital is greater than $50 000
Company Finance
When a company is formed, it normally issues shares to potential members. People who buy company shares are
called shareholders who become the legal owners of the company. They receive dividends as returns on their
investments. A company can borrow funds from persons who are not owners. This is done through debentures,
which is a written acknowledgement of a loan to a company. Debentures holders receive a fixed percentage of
interest on the loan amount.
Types of Shares
Limited Company Accounts
A company is an association of persons having separate legal existence. As a result shareholders can only loose the
value of their shares and not are liable for the debts of the business from their own assets. A Board of Director
manages a company but it is owned by shareholders. Limited Companies came into existence due to the
disadvantages of Partnership especially partners having unlimited liability.
Differences between Partnership and Limited Companies
Partnership Limited Companies
Owners are called Partners Owners are called Shareholders/members
Owners have unlimited liability Owners have limited liability
Do not sell shares Sell shares
Owners invest money and other assets as capital Owners invest in shares as their capital
Operates under the guidance of a Partnership Operates under the guidance of the Articles of
Agreement organization/Certificate of formation
Features
Incorporation – creation by law. Perpetual existence -shareholders may change
Limited liability. but the company goes on.
Separate legal entity. Transferability of shares – shares in this
Common Seal – company has special business can be transferred easily.
documents used to prove that the business is
legal.
Advantages of Limited Companies
1. The liability of the shareholders is limited.
2. Shares in the business can be transferred easily.
3. Owner is shared by many people.
Disadvantages of Limited Companies
1. Formation costs are usually very high.
2. Company accounts must be available to the public.
3. Profit distribution is subject to some restrictions. Not all profits are distributed to shareholders.
Types of Companies
Private Public
2 – 50 members 7 minimum and no maximum members
Issue shares to family members and friends Issue share to the public
Have the abbreviation ‘ltd” attached to its name. Have the abbreviation ‘plc” attached to its name.
Does not have to publish its financial statements Have to publish its financial statements annually
annually
The authorized share capital is $50 000 or less The authorized share capital is greater than $50 000
Company Finance
When a company is formed, it normally issues shares to potential members. People who buy company shares are
called shareholders who become the legal owners of the company. They receive dividends as returns on their
investments. A company can borrow funds from persons who are not owners. This is done through debentures,
which is a written acknowledgement of a loan to a company. Debentures holders receive a fixed percentage of
interest on the loan amount.
Types of Shares
