Accounting Answers
Solutions Manual
to accompany
Company Accounting 8e
prepared by
Ken Leo
John Hoggett
John Sweeting
Jennie Radford
[pic]
John Wiley & Sons Australia, Ltd 2009
Chapter 1 – Nature and regulation of companies
REVIEW QUESTIONS
1. Outline the advantages of incorporation over other forms of organisation such as partnerships.
The corporate form of organisation permits individuals to have "limited liability". This confers on shareholders a limit on their liability in the event of a winding up of the company to the amount (if any) unpaid on their shares. (S516). In the case of a partnership no such limitation applies (unless the partnership specifically adopts limited liability) and the insolvency of one or more partners can result in other solvent partners having to contribute any losses and debts out of their own private assets.
2. Distinguish between a proprietary company and a public company.
A public company is one in which there is usually a substantial public interest in that the ownership of the company 's share capital is widely spread. Public companies are entitled to raise capital through a share issue by issuing a disclosure document which entitles them to have their shares or debentures etc. listed on a stock exchange, such as the Australian Securities Exchange, to facilitate transferability. Proprietary companies on the other hand have specific limitations in terms of the amount and restrictions on its fundraising activities. Specific features of a proprietary company include the need to have a share capital (unlike a public company which may be limited by guarantee and not merely shares): • a requirement to have at least one shareholder and only one director (three directors for a public company) and not more than 50 shareholders (not including employee shareholders)
• not required to restrict the transfer of its shares (however it may elect to do so)
• the use of the
to accompany
Company Accounting 8e
prepared by
Ken Leo
John Hoggett
John Sweeting
Jennie Radford
[pic]
John Wiley & Sons Australia, Ltd 2009
Chapter 1 – Nature and regulation of companies
REVIEW QUESTIONS
1. Outline the advantages of incorporation over other forms of organisation such as partnerships.
The corporate form of organisation permits individuals to have "limited liability". This confers on shareholders a limit on their liability in the event of a winding up of the company to the amount (if any) unpaid on their shares. (S516). In the case of a partnership no such limitation applies (unless the partnership specifically adopts limited liability) and the insolvency of one or more partners can result in other solvent partners having to contribute any losses and debts out of their own private assets.
2. Distinguish between a proprietary company and a public company.
A public company is one in which there is usually a substantial public interest in that the ownership of the company 's share capital is widely spread. Public companies are entitled to raise capital through a share issue by issuing a disclosure document which entitles them to have their shares or debentures etc. listed on a stock exchange, such as the Australian Securities Exchange, to facilitate transferability. Proprietary companies on the other hand have specific limitations in terms of the amount and restrictions on its fundraising activities. Specific features of a proprietary company include the need to have a share capital (unlike a public company which may be limited by guarantee and not merely shares): • a requirement to have at least one shareholder and only one director (three directors for a public company) and not more than 50 shareholders (not including employee shareholders)
• not required to restrict the transfer of its shares (however it may elect to do so)
• the use of the
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