Company Accounts – SS2 Financial Accounting Lesson Note (Third Term)

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.

Behavioural objectives

By the end of the lesson, students should be able to:

• define a company and give examples of companies in Nigeria;
• state the three kinds of companies;
• list the features of a limited liability company;
• distinguish between a private and a public limited liability company;
• list the key terms used in forming a company;
• outline the steps in forming a company.

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.

What are the kinds of companies?

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

1. Company limited by shares: The liability of the members is limited to the amount invested in the business. If the company is liquidated, shareholders are liable only to the full extent of the shares they contributed as capital.
2. Unlimited company: The liability of a member is unlimited. If the company is liquidated, a member may be liable for the full amount of the company’s debts.
3. Company limited by guarantee: This kind of company is not formed with the object of engaging in trading activities.

What are the features of a limited liability company?

1. Objective: The major objective is to make a profit.
2. Ownership: The business is owned by shareholders. The number of members is:
   • private companies: two to fifty;
   • public companies: seven or more, with no upper limit.
3. Legal entity: The business is a separate legal entity from its owners. It is regarded as a person and can sue or be sued in its own name.
4. Limited liability: The liability of members is limited to the amount invested in the business if the company is liquidated.
5. Continuity or perpetual existence: The business continues to operate into the indefinite future. The death of a shareholder does not necessarily affect the continued existence of the business.

What are the types of limited liability companies?

A limited liability company can be divided into two types:

1. Private limited liability company
2. Public limited liability company

How is a company formed?

Key terms in the formation of a company

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

Steps in the formation of a company

1. Get the promoters. Promoters are the people who set up the business and perform the formalities required to start a company.
2. Engage a solicitor. The promoter(s) secure 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 a statement of nominal (registered) capital.
3. Stamp and lodge the documents. The documents are stamped and lodged with the registrar of companies.
4. Receive the certificate of incorporation. The registrar issues a certificate of incorporation.

Evaluation

1. Define a company.
2. Name the three kinds of companies.
3. State four features of a limited liability company.
4. State the number of members allowed in a private company and in a public company.
5. List the steps in the formation of a company.

Assignment

1. Explain the difference between a company limited by shares and an unlimited company.
2. List the documents a solicitor prepares for the registrar of companies when a company is being formed.