BSB110 Lecture Notes - Lecture 11: Australian Business Number, Australian Company Number, Private Placement
Week 11 Accounting Lecture Notes
Equity, Partnership and Companies
The Corporate Form of Organisation
• A corporation:
o is created by law
o has most of the rights and privileges of a person (but not voting or holding
office)
o is subject to the same duties and responsibilities as a person (including
keeping the law and paying taxes).
• Companies are the most common type of corporation
Characteristics of a Corporation
• Separate legal existence.
• Limited liability of shareholders.
• Transferable ownership rights.
• Continuous life.
• Ability to acquire capital.
• Company managed through elected board of directors.
• Subject to government regulations.
Forming a Company
• A company is formed by registration and is bound by the Corporations Act.
• Each company is allocated an Australian Business Number (ABN) and an Australian
Company Number (ACN).
• A company may adopt a constitution — set of rules governing internal management.
• If no specific constitution is adopted, a company is automatically subject to the
replaceable rules of the Corporations Act.
Company Shareholder Rights
• A company is owned by its shareholders.
• Different classes of shares carry different ownership rights:
o ordinary shares;
o preference shares.
• When a company has only one class of shares they are referred to as ordinary
shares.
• Ordinary shareholders have three major ownership rights:
1. To vote in the election of the board of directors at annual general meetings. To
vote on actions that require shareholder approval.
2. To share the company profits through receipt of dividends.
3. To share in assets on liquidation in proportion to their holdings. This is called a
residual claim because owners are paid with assets that remain after all claims
have been paid.
• Preference shareholders have priority over ordinary shares with respect to
dividends and claims at liquidation.
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• Ordinary shares have 3 major ownership rights:
• Preference shares have priority over ordinary shares with respect to dividends and
claims at liquidation.
Company Share Issues
• A company can issue shares and will usually receive cash in exchange for shares
issued.
• When a company decides to issue shares, it must also decide:
o How many shares should be issued?
o How should those shares be issued?
o At what price should the shares should be issued?
• Private placement involves issue of shares to certain private investors by invitation.
• Public issue requires a prospectus inviting public application for shares.
• The prospectus:
o Reports o the opa’s fiaial positio, perforae ad plas.
o Contains reports from independent parties.
• Factors influencing the issue price for a new issue of shares include:
o The opa’s atiipated profits.
o The opa’s epeted divided rate per share.
o The opa’s urret fiaial positio.
o The current state of the economy.
o The current state of the securities market.
Accounting for the Private Issue of Shares
• Shares are issued to private shareholders, who pay cash on issue.
o Journal Entry on issue:
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Accounting for the Public Issue of shares
• Prospectus is released to the public with all the information on the share issue.
• Price of shares and payment details are provided in the prospectus.
• Closing date for application for shares is given.
• Public investors who wish to purchase shares must complete and return their
application form with their application money for the number of shares requested.
• The company receives the applications and once the closing date has passed,
processes the share issue.
• Prospectus investors return application form with application money for the number
of shares they want.
• Company called for applications for shares at 70c each, payable 50c per share on
application and the remaining 20c per share on allotment.
o Journal Entry on application:
• Application money is held in trust until the allotment (or issue) of shares.
o Journal Entries on allotment:
• Company can now transfer money received on application from trust account into its
own bank account.
o Journal Entry on allotment/issue:
• Receipt of allotment money by the company can be recorded into its bank account.
o Journal Entry to record receipt of allotment money:
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Document Summary
Characteristics of a corporation: separate legal existence, limited liability of shareholders, transferable ownership rights, continuous life, ability to acquire capital, company managed through elected board of directors, subject to government regulations. Forming a company: a company is formed by registration and is bound by the corporations act, each company is allocated an australian business number (abn) and an australian. Company number (acn): a company may adopt a constitution set of rules governing internal management. If no specific constitution is adopted, a company is automatically subject to the replaceable rules of the corporations act. To vote on actions that require shareholder approval: to share the company profits through receipt of dividends, to share in assets on liquidation in proportion to their holdings. Accounting for the private issue of shares: shares are issued to private shareholders, who pay cash on issue, journal entry on issue:
