Limited companies: general background Learning objectives After you have studied this chapter, you should be able to: explain the legal nature of limited companies explain the importance of the concept of limited liability describe the statutory framework governing limited companies describe some of the major characteristics of limited companies explain the difference between the Memorandum of Association and the Articles of Association

The Companies Acts The Acts of Parliament governing limited companies in the UK are the Companies Acts 1985and 1989 The law governing limited companies in Oman- Commercial Companies Law

Types of Companies-as per CCL Oman Article 2 (*) a) General Partnerships b) Limited Partnerships c) Joint Ventures d) Joint-stock Companies e) Limited Liabilities Companies f) Holding Companies

Other forms of company The Companies Acts in UK also cover companies with unlimited liability. They also cover companies limited by guarantee Companies Act 1985 forbids the future formation of such companies unless they do have share capital.

Charracteristics of Limited Companies Separate legal entity: It may sue other business entities, people – even its own shareholders – or, in turn, be sued by them. Just as the law can create this separate legal person, it can also eliminate it through legal procedure. Memorandum and Articles of Association: The memorandum is said to be the document which discloses the conditions which govern the company’s relationship with the outside world.

Contents of Memorandum of Association. Each company is governed by two documents, known as the Memorandum of Association and the Articles of Association, The memorandum consists of five clauses for private companies, and six for public companies containing the following details: The name of the company. The part of the UK where the registered office will be situated. The objects of the company. A statement (if a limited liability company) that the liability of its members is limited. Details of the share capital which the company is authorised to issue. A public limited company will also have a clause stating that the company is a public limited company.

Public limited companies A public limited company must fulfil the following conditions: Its memorandum must state that it is a public limited company. Authorised share capital is at least £50,000. Minimum membership is one (there is no maximum). Its name must end in ‘public limited company’ or ‘plc’.

Company registration The Memorandum of Association must be delivered to the registrar together with an application for registration of the company, the documents required by this section and a statement of compliance. The application for registration must state: The company's proposed name. Whether the company’s registered office is to be situated in England and Wales (or in Wales), in Scotland or in Northern Ireland. Whether the liability of the members of the company will be limited. Whether the company is to be a private or a public company. If it is to have a share capital, a statement of capital and initial shareholdings. If limited by guarantee, then a statement of that guarantee. Statement of the company's proposed officers.

Public companies and the Stock Exchange Buying and selling of shares of most public companies are conducted on one or other of the recognised stock exchanges The shares of private companies cannot be bought or sold on any stock exchange The change of identity of the shareholders is recorded in the company’s books when a shareholder sells all, or some, of his shares to someone else. The price at which the shares were sold on the stock exchange is not entered into the company’s books.

Private limited companies The main differences between a public and a private limited company are that a private company: Can have an authorised share capital of less than £50,000. Cannot offer its shares for subscription to the public at large.

Different types of share capital Authorised share capital Issued share capital Called-up capital Uncalled capital Calls in arrears Paid-up capital

which may be of RO1, RO10, RO25 or RO100. Limited liability: The investor in a limited company, i.e. someone who owns shares in the company, is a shareholder. The maximum loss is the money paid for the shares although, where they are only partly paid, the share holder is also liable for the unpaid part. Shares Capital: The capital of the company is divided into shares. A share is an indivisible unit of capital. The face value of a share is generally of a small denomination which may be of RO1, RO10, RO25 or RO100.

Main types of shares Preference shares Holders of these shares get an agreed percentage rate of dividend before the ordinary shareholders receive anything. Ordinary shares Holders of these shares receive the remainder of the total profits available for dividends. There is no upper limit to the amounts they can receive.

Types of preference shares Non-cumulative These can receive a dividend up to an agreed percentage each year. If the amount paid is less than the maximum agreed amount, then the shortfall is lost by the shareholder. Cumulative These also have an agreed maximum percentage dividend. However, any shortfall of dividends paid in a year can be carried forward.

Loan notes The term loan note is used when a limited company receives money on loan, and certificates are issued to the lender. A loan note may be either: Redeemable – i.e. repayable by a particular date. Irredeemable – normally repayable only when the company goes into liquidation.

The appropriation account Debit side Transfers to reserves Amounts written off goodwill Preliminary expenses Taxation on profits Dividends Balance c/f to next year Credit side Net profit for the year Balance b/f for year

The Audit Report The auditor must consider whether: The accounts have been prepared in accordance with the Companies Act. The balance sheet shows a true and fair view of the state of the company's affairs. Proper accounting records have been kept. The accounts are in agreement with the accounting records. The director’s report is consistent with the accounts.

Learning outcomes You should now have learnt: Limited companies are governed by the Companies Acts. Limited companies are each a separate legal entity. Each company is governed by two documents: (a) the Memorandum of Association, and (b) the Articles of Association. What is meant by ‘limited liability’. Investors in limited companies can only lose the amount they paid (plus any amount still unpaid if the shares are only part-paid) when they acquired their investment in the company, i.e. they have ‘limited liability’.