Company Accounts SS2 Financial Accounting Lesson Note

A company can be defined as a business owned by an association of people and operated as a legal person on behalf of its owners with the motive of profit.

EXAMPLES OF COMPANIES

1. Cadbury Plc
2. Nestle Plc
3. Dangote Sugar Refinery Plc
4. Guinness Nig. Plc
5. Okomu Oil Palm Plc
6. Julius Berger Nig. Plc
7. Access Bank Plc. Etc…

KINDS OF COMPANIES

There are three kinds of companies which may be constituted under the Companies Act of 1968;

1. Company Limited By Shares: These are companies in which the liability of the members is limited to the amount invested in the business. In the case of liquidation, the shareholders will only be liable to the full extent of their shares contributed as capital.
2. Unlimited Company: In unlimited company, the liability of a member is unlimited and may be liable to the full amount of the company’s debts in case of liquidation

3. Company Limited by Guarantee: They are not formed with the object of engaging in trading activities.

 FEATURES OR CHARACTERISTICS OF LIMITED LIABILITY COMPANY

1. Objective: The major objective is to make a profit.
2. Ownership: The business is owned by shareholders;
3. For private companies: Two to fifty. While for Public companies: seven to infinity.
4. Legal Entity: The business is a separate legal entity from its owners. The business is regarded as a person; it can sue or be sued in its name.
5. Limited Liability: The liabilities of members is limited to the amount invested in the business, in the event of liquidation.
6. Continuity/Perpetual Existence: There is continuity of business operations into the unforeseeable future. The death of a shareholder may not affect the continuous existence of the business

TYPES OF COMPANIES

Limited liabilities company can be divided into two;

1. Private Limited Liability Company
2. Public Limited Liability Company.

RELEVANT TERMINOLOGIES TO THE FORMATION OF THE COMPANY

The key terms in the formation of a company include;

1. Promoters
2. Memorandum of Association
3.  Articles of Association
4. Certificate of Incorporation
5. Certificate of Trading
6. Prospectus
7.  Share Capital etc.

 The following steps will be considered in the formation of a Company;

Step 1: Get the promoters. They are conceived for setting up a business and performing various formalities required for starting up a company.

Step 2: The Promoter(s) secures the services of a solicitor to prepare the documents to be filed with the registrar of companies. The documents are; a memorandum of association, articles of association and statement of nominal/ registered capital.

Step 3: The documents are stamped and lodged with the registrar of companies.

Step 4: The registrar issues a certificate of incorporation.