SECTION 9: Accounting for Companies

• What is a limited liability company (LLC)?

  An organization owned by shareholders
• What is the liability of shareholders in an LLC?

  Limited to their share capital
• What happens to shareholders' possessions if the company goes bankrupt?

  They cannot be sought after
• How does an LLC differ from its owners?

  It has a separate legal entity
• What do shareholders receive as their share of profit?

  A dividend
• What are the key features of a limited liability company?

  • Risk is limited to the amount invested
  • Must audit accounts periodically
  • Separate legal entity from shareholders
  • Run by directors, who may not be shareholders
  • Capital raised through issuing shares
• What are the two types of shares mentioned?

  Ordinary shares and preference shares
• What is the nominal value of a share?

  The face value of an issued share
• What does it mean if shares are issued at par?

  Issued at their nominal value
• What is a share premium?

  The difference between nominal and issue price
• When do shareholders receive dividends?

  Once the company generates a profit
• How is the dividend for ordinary shareholders determined?

  Based on the level of profit
• What voting rights do ordinary shareholders have?

  One vote per share at meetings
• What is the dividend entitlement for preference shareholders?

  Fixed rate of dividend before ordinary shareholders
• What rights do preference shareholders lack?

  Voting rights at the AGM
• What is authorized share capital?

  The maximum amount of shares that can be issued
• What is issued share capital?

  The amount of shares actually issued
• What determines the amount received for shares when issued?

  The market price of the share
• What is a debenture?

  A long-term loan to a company
• When is debenture interest paid?

  Before any dividends are paid
• Is the payment of debenture interest optional?

  No, it must be paid regardless
• What specific expenses must be included in an LLC's income statement?

  • Auditor’s fees
  • Director’s remuneration
  • Debenture interest
• What is the role of auditors in an LLC?

  External independent checkers of accounting
• What is director's remuneration?

  Monies paid to directors
• How is debenture interest classified in financial statements?

  As an expense
• What is prepared after calculating net profit in an LLC?

  • The appropriation account
  • Shows distribution of net profit
• What is the statement of financial position?

  • A financial statement showing assets, liabilities, and equity
  • Reflects the company's financial health at a specific time