Introduction to Company Accounts Video Lecture | Principles and Practice of Accounting - CA Foundation

so what is a company company is a kind
of business structure a business
organization
suppose
a person wants to start a business he
invests let's say ten lakhs of rupees
and he starts his own business this kind
of structure is called a sole
proprietorship where this one person is
the owner of the business he invests
some money let us say ten lakhs of money
he is in control of this business he is
in complete charge he looks after the
day-to-day affairs the profits are
entirely his when he stops working the
sole proprietorship also stops working
there is no separate legal entity as
such the advantages are that this sole
proprietor this owner has complete
control over all the affairs of the
business of his business the
disadvantage is that his capital is
limited limited capital at the same time
when he suffers losses when he incurs
liabilities he personally has to meet
all these liabilities so that he could
have unlimited liability it is not that
his liability will be restricted to the
amount of capital that he has invested
it could be much more so under a sole
proprietorship there is limited capital
unlimited liability no separate legal
existence so that the continuity is lost
when the proprietor stops doing the
business suppose the sole proprietor a
person wants to have a bigger business a
little more funds he could get a few
other people maybe ten people combine
together each of them bringing in lakhs
of rupees so the amount of capital
raised is a little more and they form
what is called a partnership this is
another kind of business structure of
business on
under partnership also there is more
amount of capital but still it is
limited limited to the amount that these
ten people can bring there is a
restriction on the number of partners or
the maximum number of partners so there
is more capital than a sole
proprietorship but the amount of capital
is still limited what about the
liability liability continues to be
unlimited because it is not necessary
that the liability of a partner will be
restricted to the amount of capital that
he has brought it
he might incur greater liabilities than
the capital that he has invested in
strictly speaking in case of a
partnership also with the retirement
death of a partner
the partnership comes to an end a new
partnership needs to be created so
continuty or perpetual succession is not
again maintained just like in the case
of sole proprietorship so from a sole
proprietorship we evolve the business
structure has evolved to a partnership
and now we have another form of business
organization called a company in case of
a company capital can be raised from n
number of people all over not
necessarily in the city where the
company is registered not the state not
the country even investors from all
around the world could put in capital in
a company so what happens is capital
becomes unlimited the amount of capital
that we can raise in a company form of
business structure is unlimited at the
same time the company form of business
the structure is such that each owners
liability is a restricted to the amount
of capital that he has invested so we
have unlimited capital
Limited Liability also there is
perpetual succession that is a company
could go on forever it does not matter
when the owners change it has a separate
legal entity and can continue can have a
life much more far beyond the lives of
the individual owners this in brief is
how a company form of business structure
has come about let us look at the proper
definition of a company so what is a
company a company is actually defined as
a voluntary Association of persons so
what is the business organization it is
actually an association of persons
voluntary Association of persons with a
separate legal entity it has to be
incorporated under the Companies Act the
Companies Act was the Companies Act 1956
and the new Companies Act is the
Companies Act 2013 so it is a voluntary
Association of persons incorporated
under the Companies Act either the
Companies Act 1956 all the companies are
2030 or any other earlier Companies Act
so what is a company one smaller company
is a voluntary Association of persons
incorporated with perpetual succession
with an own name and the separate see
the owners have limited liability
the company has is a separate legal
entity it has an own name and its
documents etc have to be under the
company's CE and any person who
represents the company will sign on
behalf of the company but the seal is
like a signature of the company what is
perpetual succession it can go on
forever and it is independent of the
lives of its owners there are n number
of kunais several owners may form a
company an owner can transfer his share
of capital his capital to somebody else
if any of the owners died they are not
interested they move out of the business
the company does not close the company
does not come to an end the process of
closing the company or liquidation is
entirely different so there is
continuity of business there is
perpetual succession limited liability
the owners the liability of the owners
is limited to the capital that they have
invested if they have put in an entire
amount of their share of capital that
money may get lost but nothing more than
that if they have not put in the entire
amount of capital which they were
supposed to they would be further liable
only to that part of that capital which
they have not yet paid so there is a
limited liability however another
interesting aspect of the company is
that ownership and management are
different this is because who are the
owners of a company large number of
people scattered all over it is not
possible for these people these several
pullers to manage the affairs of the
company so the owners they are called
shareholders they appoint a board of
Perls these Board of Directors is
responsible for the management of the
company shareholders are the owners
ownership is with the shareholders but
management is professionally managed by
the Board of Directors appointed by the
shareholders so a company is a voluntary
Association of persons which is
incorporated has its own name and seen
with perpetual succession because the
ownership and management is separate
some control needs to be exercised a
company must maintain books of accounts
double entry and accrual system are
followed are to be followed and the
financial statements are prepared as per
the format given in the Companies Act so
books of account must be prepared and
financial statements profit and loss
account and balance sheet formats have
been prescribed in the in the Companies
Act periodically there has to be or date
ordered to ensure that the profit and
loss account gives a true and fair view
of the profits of the business that the
balance sheet tells us gives a true and
fair view of the assets and liabilities
which are owned by a company also all
shareholders have the right to
information they can ask the directors
questions on the working of the company
they attend meetings of the shareholders
and they can raise queries questions etc
they also have access to the financial
statements
this requirement of control unlike in
case of a sole-proprietorship who was
the owner the manager and knew all about
his business in case of a company with a
separate ownership and separate
management where shares owners may
constantly change it is not possible for
the owners to have total control to
manage the affairs of a company so
management is separate the Board of
Directors appointed by the shareholders
are responsible for the management of
the company but books of accounts have
to be maintained financial statements
have to be prepared periodic audit has
to be made and the shareholders have a
right of access to information in a
company this in brief is how a company
is structured and how ownership and
management with different ownership and
management the affairs of a company are
managed