Company Accounts Introduction And Definition
Company accounts introduction : Due to various limitations of Partnership firms and proprietary business the joint stock companies came into existence. Following are the few important advantages of joint stock companies as compared to other forms of business organizations :
- Large amount of capital can be raised through issuing shares, debentures.
- Liability of shareholders : limited to the extent of face value of shares held by him.
- Separate legal existence.
- Full professional management is possible.
- Democratic management.
- Full transparency etc.
Company Accounts Definition –
A company is defined below :
“ A company enterprise that has a legal identity separate from that of its members it operates as one single unit, in the success of which all the members participate. “
The company may be :
1, A private company ( Having minimum 2 and maximum 50 members ).
2, A public company ( Having minimum 7 and unlimited members ).
Formation of companies –
The persons who conceived an idea of starting a company, are called as promoters. After considering all the financial aspects, if they find that their project is commercially viable, then they proceed for forming a new company and completing legal formalities. For this purpose they have to prepare the following important documents :
MEMORANDUM OF ASSOCIATION ( M.O.A. ) :
It is an official document, signed by the promoters, it contains detailed information such as name of company, address of the registered office, the objects of company, statement of limited liability, amount of authorized capital and its division, amount of guarantee etc.
ARTICLES OF ASSOCIATION ( A.O.A. ) :
The document that governs the running of a company is called articles of association. It contains the information like powers of management, rights of shareholders, conduct of shareholders meeting and directors meeting. In general it contains guidelines for different issues regarding governing / managing the company affairs.
It is a document through which the company invites the public for subscription of shares. It contains detailed company information in connection with an issue of shares. The company has to issue the prospectus along with application form for shares, informing that the number of shares issued for subscription, its face value, issue price, terms of payment, risk factors involved etc. The investors can decide whether to invest or not , by going through the risk factors and company information. Therefore the information in this document must be authentic.
OBTAINING CERTIFICATES :
After filling M.O.A. And A.O.A. With registrar of companies with required fees, the promoters gets a Certificate of incorporation such a certificate brings the company into existence. A private company can start its business immediately, but the public company has to obtain certificate of business commencement to start its business in addition to certificate of registration.
RAISING CAPITAL / FINANCE / FUNDS :
The company raises fubds / capital through the following sources :
1, Issue of shares to public ( equity and preference shares )
2, Issue of Debentures / Bonds.
3, Public Deposites.
4, Borrowing from financial institutions like Banks.
SHARE CAPITAL :
It is a major part in the capital structure of a company, it is a long term and owned source capital. It is a part of total finance raised by the company from its owners.