Introduction to Limited Company Accounts
- 1A company is a legal person separate from its owners, managers and employees. This was decided in the leading case of Saloman v. Saloman. It is known as the SEPARATE ENTITY CONCEPT and implies that the company’s life may be unlimited. Companies may be incorporated in one of three ways:
by Royal Charter (e.g. Hudson’s Bay Company)
by Special Act of Parliament (e.g. Bank of England)
by registration under the Companies Acts.
- 2Companies Acts contain a substantial amount of detail regulating companies accounting and administration. In 1985 a new Companies Act consolidated the provisions of several earlier Acts. In addition each company is further regulated by two documents which are unique for each company. These are:
- (a)Memorandum of association, which covers dealings with the outside world. In particular:
Declaration of limited liability
Capital of the company
Articles of association, which covers the internal management of the company. The Companies Act 1985 contains a model set of Articles known as Table A.
The owners of b company are its shareholders (also called members). The total capital is divided into many, possibly thousands or millions, of shares. The shares may be held by many different shareholders, which may be individuals, or other companies. The shares carry votes which are used in the company’s general meetings and represent the ultimate power behind a company. If one person or company owns a majority of the shares then they will control the company in which the shares are held. Shares may be purchased and sold independent of the company.
The management of a company is delegated to directors, who may or may not also own shares. The directors are appointed by shareholders in general meeting. The directors act in a stewardship capacity and are required to lay financial statements before the shareholders at each annual general meeting.
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