AC120 lecture 25 Nature of limited companies Final accounts of limited companies Source: –Thomas, Chapters 26 and 27

Legal forms of organisation Bodies sole –Unincorporated bodies –Sole traders or partnerships Bodies corporate –Incorporated bodies –Legal entity separate from the members can enter contracts into contracts in their own right can sue and be sued –Includes companies legal entity formed by registration under the Companies Acts

Types of companies Four types of companies –Liability limited by shares –Liability limited by guarantee –Unlimited liability companies –Companies limited by shares and guarantees Limited liability We are interested in companies whose liability is limited by shares

Characteristics of companies limited by shares Separate legal entity Perpetual existence Liability of shareholders limited to nominal value of their shares Shareholders appoint directors to run the company Each voting share carries one vote at shareholder meetings

Classes of companies limited by shares Public limited companies –Must be registered as PLCs with minimum authorised share capital of €50,000 –Purpose is the have greater access to capital through quotation on a stock exchange Private companies –Shares not offered for sale to the general public –Suitable if retaining control is important to the shareholders

Company documentation A company is formed by sending documents and a fee to the Registrar of Companies –Memorandum of Association (Nature and purpose) –Articles of Association (Rules for shareholders) –Certificate of Incorporation –PLC also requires a Trading Certificate

Types of capital in a company Companies are financed by issuing shares (equity finance), obtaining loans or issuing debentures (debt finance), and retaining profits made during a financial period Ordinary shares –Part ownership of the company –Each share entitles the holder to a vote on resolutions in meetings of ordinary shareholders –Ordinary shareholders take the biggest risk with regard to success or failure of the company –PLC shares may be traded any time on a stock exchange

Types of capital in a company Preference shares –No voting rights –Shareholders usually entitled to fixed return each year based on nominal value of the share –Shareholders have priority over ordinary shareholders with regard to dividends. Profit available for distribution to ordinary shareholders is the amount after preference dividend has been deducted –Lower risk to shareholders but lower return in good times than ordinary shareholders because return is usually fixed

Variations of preference shares Cumulative preference shares Redeemable preference shares Participating preference shares