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December 11, 2010 0

The Liability Of Business Partners

By in Business Partners, Limited Partnership

All the partners in a business will be legally responsible for any amount outstanding by the company, which was acquired at the time when he was one of the partners. In England, all partners in a business will be liable equally with the others. If judgment is obtained against the firm as a joint liability of all the partners, each partner will be legally responsible for the full amount of the judgment. If, however, judgment is obtained only against some members of the company without satisfaction, action cannot be taken against the remaining partners.

In Scotland the partners are not just equally, but likewise severally (i.e. jointly but also independently) liable and the firm is a separate legal entity and can sue and be sued.

Limited Partnerships Act, 1907

This Act provides that a Limited Partnership may be formed in which one member at least is a general partner and one at least a limited partner. The limited partner invests capital in the corporation, but may not take any part in the management of the company. He may, however, offer advice on the management to the other partners. He shares in the profits, but his liability for the debts and responsibilities of the company is limited to the amount of capital he has put into the partnership.

The management of the company is in the hands of the general partners whose liability is that of ordinary members of a partnership firm. Should a limited partner withdraw any part of his capital he is accountable for all outstanding debts borne by the company to the extent of the capital so withdrawn. Limited Partnerships must be registered with the Registrar of Joint Stock Companies, but these are generally rare.

Sleeping or Dormant Partners

A ‘Sleeping (or Dormant) Partner’ is one who takes no active role within the actual running of the company, although he continues to share in the profits and his capital remains in the firm. He is as fully accountable for the debts and responsibilities of the company as any active partner.

Partnership Accounts

The Capital Account in the books of a sole trader contains the record of the financial position between the business and the owner. It shows the capital invested in the business at the beginning of a trading period and, at the close of that trading period, the net profit or loss and any drawings made by the proprietor. Where there are two or more owners of the company, as with any type of a partnership, there must be two or more Capital Accounts; a separate one for each partner in which is recorded his contribution to the firm’s capital.

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December 11, 2010 0

Subsidiary Books – Books Of Original Or Prime Entry

By in Double Entry Record, Subsidiary Books

In some business, the pressure of work and the need to subdivide duties among a larger staff led to the use of subsidiary books known as the Purchase Day Book, the Sales Day Book and Sales Returns and Purchases Returns Books. They are proven invaluable in order to have an efficiency system in the accounts department, but they do not diminish the importance of the Ledger, nor do they act as a substitute for any part of the actual double entry record the Ledger should contain.

The subsidiary books are useful channels only, directing the flow of entries to their appropriate places in the Ledger Accounts. However, their usefulness is great as an attachment to the Ledger that, in businesses that use them, it is made an imperative rule that no entry shall be made in the Ledger unless the data has first been entered in its appropriate subsidiary book. The carrying out of this rule ensures that the information contained in the respective subsidiary book is complete and leads also to accuracy in the Ledger record, since the rule provides for an orderly system of posting to the Ledger.

Interruptions cannot be avoided in practice and to post to the Ledger from what are virtually lists of transactions avoids omissions in posting, as it is an easy matter to note on the list the last item dealt with before the interruption and to resume again from that point. The entry of the Ledger folios against the items in the subsidiary books is in itself an excellent method of indicating which items have been posted.

Owing to the rule that transactions must be passed through the subsidiary books before being entered in the Ledger, the subsidiary books are known collectively as books of original or prime entry. The term is also applied to the Cash Book. The four books referred to above contain classified records of transactions and provide chronological lists for posting to the Ledger. The Cash Book, though part of the Ledger and containing Ledger Accounts, is a separate book and contains entries of a particular kind, namely those affecting the firm’s cash. It provides, therefore, a suitable record from which the entries may be posted to their respective Ledger Accounts. The Cash Book differs from the four subsidiary books as it is a substitute for the Cash and Bank Accounts in the Ledger and is an integral part of the double entry record, whereas the other books of prime entry are not. The Cash Book contains, however, a record only of one aspect of each transaction, except in the case of transfers between office cash and bank cash.

The cashier enters in the Cash Book each transaction affecting the firm’s cash, ignoring the other aspect, so that the Cash Book contains a specialized list of transactions from which the double entry may be completed by posting there from to the Ledger.

As the rule above referred to is extended to cover the Cash Book, the Cash Book is regarded as one of the books of original entry, but it cannot be classed with the others as a subsidiary book as it contains actual Ledger Accounts.

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December 10, 2010 0

The Issuing Of Company Shares At Discount

By in Company Shares, Prospectus

According to Section 57 of the Companies Act, 1948, it is possible for companies to issue shares at a discount. This provision is of value to a company with issued shares which stands at a discount as in such circumstances it is normally impossible to obtain subscriptions to further issue shares at par value.

However, this section also imposes the following limitations:

The proposed issue must be of a class share already issued and must be authorized by resolution passed in general meeting of the company and must be sanctioned by the High Court.

The resolution must specify the maximum rate of discount.

The issue may not be made until at least one year after the date on which the company was entitled to commence business.

The shares must be issued within one month of the date of sanction by the Court or within such extended time that the Court may allow.

Every subsequent prospectus and balance sheet must state the discount allowed or that part of it which has not been written off by then.

Based on the entries made for the applications and allotment, the final installment will be affected by the discount and entries are required on the call being made for capital.

Stocks

Under Sections 61—63 of the 1948 Act a company might, if they are authorized with the help of its Articles, make a decision in their general meetings to:

Increase the value of their share capital with the addition of new shares;

Consolidate and then segregate its capital to create shares in larger values compared to the shares on hand;

Subdivide its shares into values of smaller amount;

Make adjustments to all or perhaps any of the paid-up shares to stocks and to reconvert the stock again into shares;

Cancel that part of its authorized capital represented by unissued shares.

To convert shares into stock is to convert after congregate of shares into one mass or block of capital. The holder of 100 shares would then holds, not 100 separate shares each bearing a distinguishing number, but a £100 portion of the total block of stock forming the company’s shares.

Stock is usually transferable in units, of, for instance, £5 or multiples thereof. In some cases smaller units are permitted and even fractions of a pound as with Government stocks. The same procedure for transfer applies to stock as for shares.

There are additional resources online to assist those who are interesting in this type of investment and want to learn more about the issuing of company shares and stocks to the public.

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