Peter Marshall Bsc (Econ) BA MBIM is a Fellow of the Society of Business Teachers, and an experienced educator in business subjects. He is also a prolific author and his books have been translated and sold worldwide. He lives in London, UK.
Public and private companies
The form and extent of the accounts of limited companies are governed by the Companies Act 1985.
There are two main types of limited company:
- public limited companies, which have Plc after their name; and
- private limited companies, which have Ltd after their name.
Public companies have to disclose more information than private companies.
The company as a ‘person’
The main difference between the company and other business entities is that it is a legal entity or ‘person’ quite separate from the shareholders. The partnership and the sole proprietorship on the other hand are inseparable from the people involved: if these two businesses cannot pay their debts then the partners or proprietors may be called upon to settle them personally, because ‘the business’s debts’ are in reality ‘their debts’. On the other hand a company’s debts are its debts alone. The shareholders cannot be called upon to settle the company’s debts: their liability is limited to the original value of their shares. In law, a company is a separate legal ‘person’ (though obviously not a human one), and so has its own rights and obligations under the law.
Some of the net assets of a company may be financed by debentures. These are loans, and interest has to be paid on them. Since debentures have to be repaid, we have to show them as liabilities in the balance sheet.