Limited Companies Flashcards
Define the term public company
Company of which the min number of shareholders is 7 and the max number of shareholders is limited to the number of shares issued, the public being invited to buy shares by means of a prospectus
Define the term private company
Company of which the minimum number of shareholders is 1 and the max number of shareholders is 50, the public being prohibited from buying shares
Define the term limited liability
Company coexists as a separate legal entity and the owners’ liabilities are limited to the amounts of capital they have invested in shares
Define the term unlimited liability
The company doesn’t coexist as a separate legal entity and the owners’ personal possessions can be sold to settle business debts in case of insolvancy
Define authorized share capital
Max amount of share capital a company is allowed to issue
Define issued share capital
Actual amount of share capital issued to shareholders
What is the difference between nominal and market value of shares?
Nominal value of shares: actual price that shares are listed in the company as per memo of association
Market value of shares: share price determined by market forces of similar shares
What are ordinary shares?
Entitling the shareholder to a share in the distributable profit of the company in the form of a dividend after preference dividends are paid
- Holders are owners of company
- Voting right at meetings
- Risky investment
What are preference shares?
Entitling the shareholder to a fixed dividend, providing that sufficient income is available and that the dividend is declared in accordance with the articles of association
- not owners of company
- no right to vote at AGMs
- offer investors a lower level of risk
- in event of liquidation they are given priority after debenture holders of claims of ordinary shareholders
Define cumulative preference shares
Give holders right to receive unpaid dividends in the future periods in case of insufficient profits
- unpaid dividends are carried forward form period to period
- outstanding dividends balance will be paid in a future period before the ordinary shareholders get paid
Define non-cumulative preference shares
Shares that don’t give holders right to receive unpaid dividends from one period to another
- unpaid dividends are not carried forward from period to period
- outstanding dividends balance is written off in the period they were declared
What is the difference between capital reserves and revenue reserves?
Name and explain two examples of capital reserves
Name and explain two examples of revenue reserves
What are the features of debentures?
-long-term loans evidenced by deeds which set out the rate of interest payable and date of redemption
-debenture is a certificate that certifies that an amount is owed to someone
-a company may issue shares as security to obtain debentures and redeem them later upon repayment
-interest on debentures is a financial expense to the company
-debenture holders are lenders; they are not members of the company and are not entitled to vote on shareholders’ meetings