96 Accounting: Business Reporting for Decision Making
The reality check below provides an illustration of the real-life company Sass & Bide and their pro-
gression from selling jeans at a market to a multimillion dollar company.
REALITY CHECKSass & Bide
Sarah-Jane Clarke and Heidi Middleton started off
in a partnership selling ‘funky customised jeans’ at
London’s Portobello Road market in 1999. Initially they
were both working in their accounting and marketing
jobs and selling jeans at weekends. As a partnership,
they did everything ‘pretty much by splitting it 50–50’.
They ‘put in the same amount of work, took the
same salaries, both had families and both believed
in a healthy work–life balance’. Early on they bor-
rowed $70 000 to expand the business. Within a year,
they had repaid the loan and were recording large
profits with no debt because of the success of the
product they were selling. By 2006, they were both
on the BRW young rich list. In 2009, they restruc-
tured their business by bringing in outside investors
who bought 50 per cent of the equity. In 2011, they
sold 65 per cent of their company, Sass & Bide, for
$42.25 million to Myer Holdings. They currently sell in
over 20 countries and have just expanded to shipping
online to New Zealand, the United Kingdom and the
United States.Source: Mobbs, R 2011, ‘Heidi Middleton & Sarah-Jane Clarke’,
InTheBlack, August, p. 31.3.6 Definition and features of a company
LEARNING OBJECTIVE 3.6 Define the term ‘company’.
A company is a form of business characterised by owners known as shareholders. A company is an
independent legal entity, meaning that it is separate from the people who own, control and manage it.
The separate legal status of the company has many implications for the entity. First, the company can
enter into contracts, incur debts and pay taxes independently of its owners. Unlike sole traders and part-
ners, a company’s owners do not pay individual tax on all the company’s profits. Instead, the owners
pay individual taxes only on the company profits paid out to them in the form of salaries, bonuses and
dividends. A dividend is the distribution of part of a company’s profit to shareholders. It is usually
expressed as a number of cents per share.
The owners (that is, shareholders) are not personally responsible for the debts of the company; they
are liable only for the unpaid balance of shares they agree to purchase in the company. For example,
if a company issued $2 shares, with $1.50 payable on application and the remaining 50 cents payable
by future instalments, the shareholders’ liability in the event of the company collapsing would be the
remaining 50 cents on each share they own. This is known as limited liability of the shareholders.
Unlike sole traders and partnerships, the company does not dissolve when its owners (shareholders)
change or die. If the shareholders of the company decide to sell their shares in the company to another
buyer, this transaction takes place in the ‘market’ and does not affect the company’s balance sheet; that
is, a change in name of a shareholder does not affect the financial statements.
It is important that the partners draw up a
partnership agreement to record the details of
the partnership.