An introduction to the financial statements of limited liability

companiesChapter 45

Public / PrivateA Public company:•Has a memorandum (a document that describes the company available for all stakeholders)•It has share capital of a least £50,000•There is no maximum number of shareholders•The name of the business must end with ‘PLC’ or ‘CCC’ if in Wales•May offer shares on the stock exchange

A Private company•Must have share capital less than £50,000•Cannot offer shares to the general public

DirectorsThe day-to-day running of the business is not carried out by the shareholders (owners). The shareholders will vote for a directors at an Annual General Meeting.

Limited companies posses a ‘separate legal entity’ from the shareholders.

This is known as the veil of incorporation.

Read case study (page 600)

Share capitalShareholders receive dividends as a reward for investing in the company. The directors decide how much each shareholder can receive.

Shareholders CANNOT ask for more dividends, but CAN ask for less dividends.

Preference shares: holders of these shares get an agreed percentage rate of dividends before ordinary shareholders receive anything.

Ordinary shares: holders of these shares receive the remainder of the total profits available for dividends.

Non-cumulative preference shares. These holders can receive a dividend up to an agreed amount, anything less is accepted as a loss. They can not carry the difference forward to the next year.

Cumulative preference shares. These holders can receive a dividend up to an agreed amount, anything less is carried forward to the next year. They will receive their total payment due to them before any ordinary shares are paid.

Share capitalMake a poster on share capital page 602.