Accounting


Introduction


A company is a business enterprise in which people work together for the purpose of manufacturing, buying, or selling goods, or providing a service. Most countries have a company act, this is a law which makes sure companies carry out business in a proper way. The act ensures that people wanting to start a company, put in a formal application, the company is now registered at a government office.


Most companies are limited liability companies, sometimes called joint stock companies. Limited liability means that the financial responsibility of its owners is limited to the amount of money originally invested. In an unlimited liability company, owners are responsible for all company debts, however large.


When a limited liability company is established, its capital is divided into shares, which are owned by the members of the company. The members, or shareholders, control the company by attending the annual meeting and a electing a board of directors. The directors have responsibility for running the company and making decisions.


Some larger companies are described as listed or quoted. The shares of these companies may be bought or sold by the general public on a market called a stock exchange.


Private limited companies are more numerous than public companies. Their structure makes them much more suitable for small and family businesses. Generally, the number of shareholders is limited by law and the share owners cannot normally transfer shares to anyone else without the approval of the other owners.


The Formation Of A Company


There are several requirements to form a company:


· Firstly, a group of people called promoters with a common profit motive decides on the formation of a company.


· The promoters follow many different laws and acts. Eg: The Company Act No 61 of 1973, they also have to register the Memorandum and Articles with the Registrar of Companies.


· Once the Registrar issues a certificate of incorporation, the company comes into existence


· The first shareholders, which are the subscribers to Memorandum of Association, and the subsequent shareholders constitute a Body Corporate, having its own legal personality.


· Once a company has received a certificate to commerce business, the company can start trading. Sufficient capital must be obtained to start a company.


· A Prospectus is issued by the Directors, in a public company, to the public. The Prospectus shows investors all the information they need to know to make their decisions.


· A full payment with a share application form is required from the prospective shareholders.


· If the shares are over-subscribed or under-subscribed, the company takes the following actions:


· If it is over-subscribed, then each applicant will not be allocated the full number of shares ordered by him.


· If it is under-subscribed, then shares are sold to a financial institution, in return for a fee.


· Certificates are issued to the shareholders.


Public Companies With Limited Liability


VS


Private Companies With Limited Liability


Private Company


Definition - A private company can be formed by 1 to 50 persons having limited liability. It may not invite the public to buy shares, and share transfer is restricted


Characteristics – The name of a private company always ends in Proprietary Limited (Pty Ltd). A private company is limited to 1 to 50 shareholders. The capital is obtained by shares being issued to the founders. A Board of Directors is selected by the shareholders. The company is a legal person separate from its members. The shareholders have limited liabilities. The business has an indefinite life unless liquidated. Share transferability is restricted and requires consent of other shareholders. The Company Act does not compel companies to hold meetings. Profits are paid out in form of dividends determined by the Directors.


Advantages


Disadvantages


The liability of shareholders is limited


Shares are not freely transferable, and cannot be listed or traded on the JSE


A Private Company is not subjected to the restrictions laid upon Public Companies intended to protect the public


A Private company may commence business immediately on receipt of the Certificate to Commence Business. It is suitable for people with initiative, but limited capital


It is not suitable as a form of ownership for a very large business


Large capital can be raised, due to 50 shareholders


Capital is limited as Private Companies can not appeal to the general public to subscribe to there shares


Public Company


Definition- A Public Company is an association of persons established for the purpose of profit,