Accounting Business Reporting for Decision Making

(Ron) #1

100 Accounting: Business Reporting for Decision Making


paying the outstanding debts. This form of business structure is popular among sporting clubs and not-


for-profit organisations such as charities and social groups, which do not usually make a profit but need


to be a separate legal entity. For example, Green Collect (www.greencollect.org) is a not-for-profit social


enterprise that works for sustainable social and environmental change. It became a company limited


by guarantee to meet its goal of providing increased numbers of supported employment opportunities


through ensuring its activities are viable and sustainable. Operating as a company limited by guarantee


provides Green Collect with a framework to support the work involved in delivering environmental ser-


vices. Green Collect builds inclusive workplaces that create sustainable change in the world. The com-


pany collects unwanted materials, such as printers, print cartridges, corks, mobile phones and so on, and


recycles or converts them into new products.


No-liability company


No-liability (‘NL’) companies are companies that have shareholders who have no liability for the out-


standing debts of the company, due to the risky nature of the company’s operations. Shareholders are


attracted to this type of company as there is the possibility of obtaining a good return on their investment.


However, there is also obviously no guarantee. For that reason, if a no-liability company becomes insol-


vent, shareholders have no further responsibility (they don’t even have to pay any outstanding amounts


owed on their shares). In Australia, these companies are solely mining companies. Forte Energy NL is a


no-liability company incorporated in Australia on 7 March 1984. It is listed on the Australian Securities


Exchange (ASX) and also on the London Stock Exchange (LSE). The company states the following in


its constitution relating to the liability of its members: ‘The acceptance by a person of a share in the


Company, whether by issue or transfer, does not constitute a contract by the person to pay calls in res-


pect of the share or to make any contribution to the debts or liabilities of the Company’.


Unlimited company


Unlimited companies are characterised by members who have no limit placed on their liability. This


form of company is usually restricted to investment-type organisations.


3.8 Advantages and disadvantages of a company


LEARNING OBJECTIVE 3.8 Discuss the advantages and disadvantages of a company.


As outlined earlier, companies in Australia are divided into proprietary and public companies, the latter


having several further divisions. Following is a broad overview of their advantages and disadvantages.


Advantages


The main advantage of forming a company is the limited liability that shareholders have for business


debts. Other advantages include taxation, as company rates may be lower than some individual tax rates.


As of 2015, the Australian company tax rate is 30 per cent and the top personal tax rate is much higher.


(Current personal tax rates can be found on the Australian Taxation Office website, http://www.ato.gov.au.))


The company form of ownership can also provide entities with additional opportunities to make income


through expanded business networks, as some businesses are reluctant to trade with sole traders and


partnerships because of their non-legal status. Companies also have the ability to raise large amounts of


capital through public share offerings.


Disadvantages


There are several disadvantages of the company form of business structure. First, the company is more


expensive and time consuming to establish. Companies must comply with the Corporations Act and


other legal requirements from which partnerships and sole traders are exempted. Most companies must


hold annual shareholder meetings, prepare financial statements based on accounting standards, and lodge


their financial statements with ASIC. Companies are subject to the company rate of tax. The limited

Free download pdf