COMPANY ACCOUNTS

COMPANY ACCOUNTS

TYPES OF COMPANIES

• Companies limited by shares can be classified into three categories viz., (i) Private Limited Company, (ii)  Public limited Company and (iii)  Government Company

A private limited Company is a company which by its  articles (i) restricts transfer of its shares, (ii) prohibits itself from inviting subscription of shares/debentures from public, (iii)  limits the number of its members to 50.

A public limited company does not have such restrictions.

A Government Company where not less than 51% of the share capital held by government (central/state/both)

Company Limited by the guarantee

A company limited by guarantee is a registered company having the liability of its members limited by its memorandum of association to such amount as the members may respectively undertake to pay if necessary on liquidation of the company

DIFFERENCE BETWEEN A PVT. LTD. CO. AND  A PUBLIC LTD. CO.

	Points of Difference	Private Ltd. Co.	Public  Ltd. Co.
i)	Minimum number of shareholders	2	7
ii)	Maximum number of shareholders	50	No limit
iii)	Transfer of share	Restricted	Freely transferable
iv)	Invitation to public for share & Debentures and fixed deposit	Prohibited	Permitted
v)	Certificate of commencement of  business	Not required	Permitted
vi)	Minimum Directors	2	3

DOCUMENTS RELATING TO COMPANY ACCOUNTS

1. Certificate of Incorporation is issued by Registrar of Companies. This gives the conclusive proof that all formalities involved in formation of a company are duly complied with.
2. Memorandum of Association

• While applying for registration / certificate of incorporation, the promoters of the company submit to the Registrar of Companies two important documents for registration. They are memorandum of association and articles of association.
• The memorandum of association of every company contains the following six clauses (i)  Name clause (which gives the name of the company), (ii) Place clause (gives address of he registered office of the company), (iii) Objects clause (gives the activities the company can pursue),(iv) liability clause (gives that the liability of shareholders is limited, (v) Capital clause (gives the maximum  capital the company can issue/authorized capital), (vi)  Association clause (gives the consent of the promoters under their signatures that they are desirous of forming a company).
• The object clause usually sets out the powers which the company can exercise for achieving its objectives. For this reason memorandum of association is also called charter of the company

     3.  Articles of Association

• Like Memorandum of association it is also a public document.
• It contains the rules and regulations for internal management of the  company like the powers of Board of Directors, Rules for conducting meetings,use of common seal, use of borrowing powers etc.
• The Articles are subordinated to memorandum.
• A public limited company may opt not to register article of association. In that case the rules and regulations given in Table A in first schedule of the companies Act will be taken ass the article of association of the company.

    4.   Certificate of Commencement of Business

• Required only in case of public limited companies

          Omnibus Resolution

• A resolution (passed by Board) authorizing to open account in the name of the company with any bank at any place is called Omnibus resolution.
• An omnibus resolution can be accepted for opening  current account. No credit/overdraft facility is sanctioned in the account, based on such resolution.

OPERATION OF COMPANY ACCOUNT

• Cheque signed by an authorized person can be paid even after his death or insolvency
• Cheque payable to a limited company should not be collected in personal account of any director.
• Employee/official of the payee company.
• cheque issued by a company in favour ofa third party and endorsed by he payee in favour of a director/employee of the company should not be collected without proper enquiry.

Insolvency

• A company cannot be declared insolvent. Whee a company cannot pay its debits it can be liquidated/wound up.
• Where one of the directors becomes insolvent, it does not affect operation of account.
• Cheques signed by him can be paid.However,after insolvency be cannot act as director.
• If one of the two directors of a Private Limited Company is adjudged insolvency, the operation in the Company's account should be stopped till a fresh director is appointed.

DEEMED PUBLIC LIMITED COMPANIES

• Section 43(A) of Companies Act provides that a Private Limited Company shall be deemed to have become a Public Limited Company on the happening of any one of these events. (I) one more more body corporate hold 25% or more of  the paid-up capital of public company.(II) The Company accepts (by public invitation) deposits, or (III) its average annual turnover (fora period of three years) exceeds the limit prescribed by the Central Govt.form time to time (presently it is Rs.10 Crores).

NON-PROFIT MAKING COMPANY

• A limited company need not ladd the word limited to its name if it is a non-profit making  association formed for the promotion of art, literature,religion and licensed by Central Government under Section 25 of Companies Act, 1956.
• The word "Limited: in the name of a company indicate that the liability of a share holder is limited to the extent of the face value of shares held by him.

ACCOUNTS TO COLLECT SUBSCRIPTION

• When a newly formed public limited company wants of open a bank account for the purpose of collection of subscription money f9or its shares/debentures,banks should not the following points
• It is the responsibility of banker to ensure that the one is not withdrawn/utiliszed till the company obtains the certificate of commencement of Business.
• For opening subscription account the bank, therefore, should not insist upon "Certificate of Commencement of Business".
• No chequebook can be issued in such account.
• No withdrawal can be allowed until the company obtains Certificate to commence business.
• However, bank can transfer the amount or part thereof for investing in short term deposits.

WINDING UP OF COMPANY

• Winding up or Liquidation is the process by which a company is dissolved.
• Winding up can be (I) voluntary, either by shareholders or by creditors (II) Compulsory by Court or III) through Court supervision.
• On the appointment of a liquidator, all the powers of Board of Directors cease tro operate except when it is otherwise permitted in general body meeting  resolution.
• In case of death/resignation of the liquidator the company in general body meeting appoints the next liquidator

Order of payment on debts

• In case of winding up, the debts of the company are paid in the following order (I) workmen dues, (II) Secured Creditors, (III) Cost and charges of winding up (IV) Preferential debts (taxes etc.), (V) Floating charges, (VI)  Unsecured Creditors.
• The unsecured creditors are paid part passu their claim.

DIFFERENCE  BETWEEN PARTNERSHIP  AND  A COMPANY

PARTNERSHIP	COMPANY
A partnership firm is the sum total of persons (minimum 2 and maximum 20) who have come together to share the profit f the business carried on by them or any of them. It does not have a separate legal entity.	The company has a separate legal entity. It needs to be incorporated. A public company may have as many members as it desires subject to a minimum of 7 members. A private company can’t have more than 50 members and less than 2
Liability of partners is unlimited	Liability of shareholders of a limited company is limited to the extent of unpaid shares or unpaid amount guaranteed by the shareholders.
Property of the firm  belongs to the partners and they are collectively entitled to it.	In case of a company the property belongs to the company and not to its shareholders.
A Partner cannot transfer his  shares in a partnership firm without the consent of all other partners	Shares may be transferred without the permission of the other members due to the absence of provision to contrary in the articles of associations of the company.
On the death of a partner, the partnership is dissolved unless there is provision to the contrary in the Deed of Partnership.	On the death of the shareholder the company’s existence is not affected.