acc

• Compare and contrast this with the management and shareholding of a private limited company
• Private limited company


  Usually the owners are the same as the management, so the owners are heavily involved in the day-to-day running of the company. The owners take decisions that affect the profitability of the company and have full control of the company.
• Listed company


  There are a number of shareholders who are not the directors of the company, so they do not have control of what is happening inside the company. The shareholders are not taking the decisions that will affect the profitability of the company.
• Principle Agency Theory

  The principle is the shareholder, the agent is the director. The principle appoints the agent to run the company on its behalf. The agent (director) who does not own the company can take certain decisions that might not be beneficial for the shareholder in the long run.
• Additional rules are in place to protect the investors from the conflicts that may arise between the principle and the agent (shareholders and directors)
• The Code of Principles of Good Corporate Governance is an appendix that aims to ensure the agents/directors have run the company in a good, efficient, effective and proper manner
• Types of companies listed on the stock exchange

  • Public companies that offer their shares to the public (equity listing companies)
  • Companies that list their bonds
  • Collective Investment Schemes (funds)
• Equity

  Owning part of the company
• Bonds


  Loans to the company, with a maturity date and interest payments
• Collective Investment Scheme (CIS)


  Companies that invest in other companies' equity and bonds, allowing investors to indirectly invest in those companies
• Types of listings on a stock exchange

  • Main listing
  • Secondary listing (alternative market)
• Main listing


  For companies with a significant track record and capital raising plans
• Secondary listing (alternative market)

  For companies with less history, smaller capital raising plans, and less frequent capital needs
• Listed companies have more stringent continuing obligations than private limited companies, including publishing annual reports within 4 months of year-end
• Private limited companies have up to 10 months to approve financial statements and 42 days to publish them
• Annual report components for listed companies

  • Full set of IFRS financial statements
  • Auditor's report
  • Directors' report with additional disclosures required by listing rules
• Additional disclosures in listed company directors' report

  Disclose directors who own more than 5% of shares, directly or indirectly
• A (individual)


  Owns 6% of Garden plc. through B ltd.
• B ltd has 5% or more of the shares in Garden plc.
• Those individuals who are acting as directors who directly or indirectly owns 5% or more of the shares must be disclosed.
• B limited can never be a director, it is a company.
• The other shareholders would want to know if there are any directors who own a significant proportion of the shares.
• Directors who own a significant proportion of shares can take decisions that are in their favour but against the interest of the other small shareholders.
• By disclosing this fact in the directors report everyone will know who of the directors own a significant portion of shares and therefore any decisions taken by such directors will be highly scrutinized.
• A listed company has to provide more information than a private company.
• The company is providing further information so the public can assess the stewardship of the company.
• Employee share scheme


  A scheme whereby the employees will partly be paid in cash whilst the remainder of the wages will be paid with future shares in the company
• How an employee share scheme works

  1. Employee earns €4000 per month

  2. Company pays €3000 in cash

  3. Remaining €1000 paid in future shares valued at €1 each

  4. Employee can buy 1000 shares at €1 each in 2020

  5. If share price increases to €1.45 in 2020, employee can sell shares for a 45c profit
• The option to buy shares in the future will affect the current and prospective shareholders of the company.
• If the number of shares increases due to the employee share scheme, the earnings per share will decrease.
• The double entry is Dr Wages and salaries, Cr liabilities.
• Golden handshake


  A clause in the employment contract of top management that entitles them to a one-time sum of money if they are fired or sacked
• Shareholders would want to know about golden handshakes as they are an additional expense for the company.
• The requirement to have a director's report comes from the companies act, not the listing rules.
• Additional details required in the director's report for listed companies

  • Those directors who owns 5% or more of the shares have to be listed
  • Information about employee shares scheme
  • Information about golden handshakes
• From 1st January 2005, all companies listed on an EU stock exchange have to prepare financial statements in accordance with IFRS's.
• Components of financial statements under IFRS

  • Income statement
  • Statement of financial position
  • Statement of changes in equity
  • Statement of cashflows
  • Notes to the accounts
• The full set of financial statements prepared by listed companies have to be audited by an independent third party (auditor).
• The auditor's report states whether the financial statements prepared by the board of directors show a true and fair view.
• GAPSME


  An accounting framework that private limited companies can use to prepare their financial statements