Accounting Business Reporting for Decision Making

CHAPTER 3 Business structures 99

Limited by shares

Public companies limited by shares are companies that offer shares to the public and that must have

at least three directors and at least one shareholder. The shares can be classified broadly under two

headings:

1. ordinary or common shares (see figure 3.1)


2. preference shares.

21 Contributed equity

(a) Share capital Parent entity

2015

Shares

2014

Shares

Ordinary shares — fully paid 98 989 901 98 947 309

FIGURE 3.1 Summary of ordinary shares for JB Hi-Fi Ltd

Source: JB Hi-Fi Ltd 2015, preliminary annual report, p. 82. Extract of Note 21 (Contributed equity) from the Notes to the
financial statements in the Annual Financial Report 2015 of JB Hi-Fi Ltd.

Ordinary shares are the most common class of shares in Australia. Preference shares rank ahead of

ordinary shares if the entity goes into liquidation, and the preference shares usually receive a fixed rate

of dividend, which is paid out before the ordinary shareholders’ dividend is paid.

A limited-by-shares company is commonly denoted by the word ‘Ltd’ in its name, signalling that

the liability of the shareholders is limited to the subscription price of the shares. Public companies

limited by shares can be either listed on the stock exchange or not listed. For a company to be listed on

the stock exchange, it must meet certain financial criteria. Both listed and non-listed public companies

must follow the requirements of the Corporations Act but listed companies must also follow the Listing

Rules requirements of the Australian Securities Exchange (ASX). The Listing Rules stipulate that listed

companies must report announcements to the ASX to keep the different users up to date, and they must

report profit results and other financial information within specific deadlines.

An example of a limited-by-shares Australian company is JB Hi-Fi Ltd (see illustrative example 3.4).

ILLUSTRATIVE EXAMPLE 3.4

JB Hi-Fi Ltd

JB Hi-Fi Ltd is an Australian limited-by-shares company specialising in home consumer products with

a particular focus on consumer electronic and electrical goods and software. The company has head-

quarters in Victoria, Australia. The business commenced operations in 1974 in a small suburban shop-

ping strip in Melbourne, selling a range of hi-fi equipment and records. In October 2003, the company

was listed on the ASX and expanded its range to include LCD televisions, home theatre components,

computers and laptops, mobile phones, iPods, cameras, DVDs and a large number of accessories.

Profit after tax for the financial year ending 30 June 2015 was $136.5 million and total assets were

approximately $895 million. Currently, there are 144 JB Hi-Fi stores and 43 JB Hi-Fi Home Stores across

Australia and New Zealand. The company also operates JB Hi-Fi NOW — an online digital content plat-

form — and also JB Hi-Fi Solutions, which sells products and services to the commercial, government

and education sectors.

Source: JB Hi-Fi Ltd 2015, preliminary annual report.

Limited by guarantee

Companies can be limited by guarantee, which means that the owners guarantee to contribute an agreed

amount of cash or other assets to the company in the event of the company winding up. This amount is

normally a very small amount and would assist in the costs associated with winding up the company and