Accounting for Companies Practice Flashcards

A comprehensive set of vocabulary flashcards covering company forms, legal requirements, equity features, and accounting for share issues as described in the lecture notes.

Articles of Association

The formal rules for the conduct and governance of the company, defining the rights of members (shareholders) and the duties of directors.

Authorised share capital

The share capital detailed in the Memorandum of Association, representing the limit up to which directors can issue shares.

Board of Directors

The governing body of the company, appointed by shareholders in a general meeting, responsible for managing the company.

Dividends

The distribution of profits to shareholders, which must be declared by directors before shareholders have a right to receiving them.

Issued share capital

The share capital that has been issued by the directors either by means of a public offer or a private placing.

Legal entity

An entity that is recognized as having a separate legal existence from its owners.

Limited liability

A condition where the shareholders' liability ceases once they have fully paid for their shares; creditors cannot look to shareholders for the settlement of company debts.

Memorandum of Association

The constitution of the company, setting out its name, main business, objectives, powers, and details of authorised share capital.

Ordinary shares

The main risk-bearing and voting shares of the company; holders receive dividends after preference shareholders and are last to receive payment in liquidation.

Preference shares

Shares that carry a preference over ordinary shares for dividend payments and liquidation payments, usually without voting rights.

Companies Act $71$ of $2008$

One of the primary legislative frameworks regulating companies in South Africa.

Private company

A company catering to smaller, owner-managed businesses identified by (Pty) Ltd, which prohibits public subscription of shares and restricts share transfers.

Public company

A large company often listed on a stock exchange (Ltd) that allows public subscription and has no limitations on the transfer of shares.

Executive directors

Directors who are involved in the day-to-day management of the company.

Non-executive directors

Directors who sit on the board but are not involved in the day-to-day management of the affairs of the company.

Cumulative preference shares

A type of preference share where dividends must be paid (including any arrears) before ordinary shareholders receive a distribution.

Redeemable preference shares

Shares classified as a liability because the company has a contractual obligation to deliver cash to the holder; dividends are treated as interest expense.

Stated Capital

The term used for issued share capital when a company issues shares of no par value.

No par value shares

Shares that do not have a nominal value and are issued at a price decided by the directors.

Prospectus

A document issued by a public company that sets out company details, director names, and profit forecasts to allow the public to apply for shares.

Share application account

A temporary account used to record money received from the public for shares before the directors decide on successful applications.

Debenture

A liability representing a type of loan divided into smaller units, bearing a fixed rate of interest and specified repayment terms.

Preliminary costs

Expenses incurred when a company is formed (e.g., legal fees for the memorandum) which are expensed and recognized in profit or loss.

Share issue expenses

Expenses related to the issuance of shares, such as underwriting commission, which are recognized against stated capital.

Underwriting

An insurance process for a public offer where a merchant bank agrees to subscribe for any shares not taken up by the public to ensure the company receives required capital.

Underwriting commission

A premium paid to an underwriter, usually based on a percentage (e.g., $0.5\% \text{ or } 1\%$) of the total value of the share issue.

Rights Issue

An invitation to existing shareholders to apply for additional shares based on their current holding, usually at a price slightly below the market price.

Interim dividends

Dividends that are declared and paid during the course of the financial year.

Final dividends

Dividends usually declared at the end of the financial year.

SARS Income Tax

The tax expense calculated on taxable income (net profit adjusted for the Income Tax Act), involving provisional payments during the year.