A limited company has a separate legal entity.
This means it has the ability to sue and be sued.
The shareholders will have limited liability to the extent
of its investment in the company.
Example:
A shareholder invests RM10,000 into CDE Sdn Bhd.
The shareholder risk of losing the investment invested i.e.
to the maximum of RM10,000.
The shareholder’s liability is limited to a maximum of
RM10,000 in this case.
The limited company can be classified into:
A)
Private Limited Company
No offer of shares to the public
B)
Public Limited Company
May not necessarily be listed on the stock
exchange market.
Shares and debentures may be offered to the
public.
Ordinary Shares
Which is also known as equity shares.
The shareholders of ordinary or equity shares are owners of
the company.
The shareholders have the right to vote at the Annual
General Meeting (AGM).
The shareholders receive dividends as a share of the profit
after deducting all expenses including
Dividends to the preference shareholders.
Preference Shares
They are own by shareholders of whom have rights to a fixed
dividend before any dividends are payable
to the ordinary shareholders.
These shareholders will have the right to repayment of their
capital first before the ordinary shareholders
In times of company liquidation.
Cumulative Preference Shares
They will also have rights to dividends not paid in previous
years by the company due to either insufficient profits
or funds.
Note:
However, all preference shareholders usually do not have
rights to vote at any Annual General Meeting (AGM).
Authorised Share Capital
The total number of shares that the company is authorised to
issue for the public to subscribe.
Paid-up Capital
Is the total no of shares issued and paid up by the
shareholders.
Share Premium
Is the excess value of shares issued over the par or nominal
value of the shares.
Such excess value is transferred to the Share Premium
Account.
Company’s Debt
Companies having legal entities can borrow money in its own
name.
This amount borrowed is known as company’s debt.
The company is committed to pay interest even if the company
is not performing well.
The interest is an expense item to be shown in the Profit
& Loss Account.
Debenture Loans
These are redeemable debentures and irredeemable debentures.
The interest rate is fixed until the date when the debenture
is paid back to the lender.
Redeemable Debentures
Redeemable debentures simply means that it will have a fixed
redemption date.
Example:
8% debenture (2013)
It means that the debenture will earn 8% interest per year
on the original value and it will be repaid in 2013.
Irredeemable Debentures
This does not mean that the debentures is not repayable. It
is repayable on the date when the company ceases its
operating activities i.e. ceases to trade.
Unsecured Debentures
These debenture holders will usually be paid a higher rate
of interest as their investments are not secured against
some or all of the company’s assets.
The company cannot be forced to pay back the debenture
holders at the end of the term.
IMPORTANT REMINDER
THIS IS TO PROVIDE STUDENTS A COURTESY REMINDER THAT THIS BLOG IS
CATERED
TO HELP ACCOUNTANCY STUDENTS AT BASIC LEVEL TO GAIN A QUICK SUMMARY OF
MAJORLY ALL THE BASIC COMPONENTS OF THE BOOK-KEEPING AND ACCOUNTING
STUDIES.
IT IS NOT MEANT TO PROVIDE A COMPLETE CONTENT OF THE SUBJECT MATTER.
THEREFORE, STUDENTS ARE ADVISED TO TAKE THIS INFORMATION RESOURCE AS A
SUPPLEMENTARY READING ONLY.
THIS READING MATERIAL IS ONLY A SUMMARY OF WHAT IS ESSENTIAL IN
GETTING A GOOD UNDERSTANDING BUT NOT AN EXHAUSTIVE ONE OF THE RELATED TOPIC.
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