definition of a member of a company
someone who owns at least one share i.e. shareholder
Criteria of a business to become a plc
- issued share capital of over £50k
- at least two members and two directors
What is the first document a limited company must prepare?
Articles of Association
What does articles of association lay out?
- constitution of the company
- regulates the affairs of the company to the outside world
- sets out rules for running the company (powers to directors and holding of company meetings)
Two main types of shares:
- ordinary shares
- preference shares
Summary of ordinary shares
- carry main load of risks and rewards of business profits
- receives profits in form of dividends after preference shares
- carry voting rights
- holders attend AGM and other shareholder meetings
Summary of preference shares
- fixed agreement on future dividends
- paid before ordinary shares
- paid before ordinary shares in event of liquidation
- no voting rights
Another way of saying nominal value of a share
Par value
Name given to difference between purchase price of a share and the par value
Share premium (par value of £1.00 but sold at £1.50 results in share premium of £0.50
Debenture (loan stock) principles
- formal certificate offered by large company
- fixed interest rates
- secured against business assets
Examples 5% business loan stock £100k equates to £5k a year in interest to the lender
Two main items on statement of profit or loss that are found in limited companies but not elsewhere
- directors’ remuneration
- loan and debenture interest
where would be the profit or loss of a revaluation be found in the financial statements?
after statement of profit or loss
what is the purpose of the mandatory statement of changes in equity?
provide bridge from P&L to SoFP
What are reserves?
Residual profit left over after dividends taken
Two types of reserves:
- Capital reserves (property revaluation. Cannot be used to issue dividend as no cash involved. Share premium)
- Revenue reserves (retained earnings or specific or general reserves kept after dividends. Can be used for dividends)
What is the accounting treatment to shares issued at above par value?
- pay value issue is recorded in issued share capital section
- premium (excess) is recorded as capital reserves
is share premium a capital or revenue reserve?
Capital reserve (brought about due to revaluation and cannot be used for dividends)
