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A
Abbreviated Accounts
Small
or medium sized companies are entitled to submit abbreviated accounts
to the Companies House. This is a shortened version of accounts
containing less information than full accounts, e.g. the full profit
& loss account.
Accountant
A
person who is trained and qualified to keep financial and accounting
records for individuals and businesses. Accountants can offer an
extensive range of services, from straight-forward book-keeping to
auditing and management consulting.
Accounting Period
This is a period with reference to which
Accounting Reference Date
The
accounting reference date is the date to which the company’s accounts
will be drawn up each year – the company’s financial year end. See s
224 of the Companies Act 1985.
Alternate Director
An alternate director
is a person who is appointed to attend a board meeting on behalf of the
director of a company where the principle director would be otherwise
unable to attend. An alternate director can vote at board meetings and
carry out the same functions as his appointing director in his absence.
The alternate carries full legal responsibility and liability as a
director. Sometimes alternates may only be appointed from other members
of the board to avoid the introduction of outsiders.
Annual Accounts
This
is a financial summary of the state of affairs of a company over the
course of a year. It includes a profit and loss account, a balance
sheet and a statement of cash flows (see also “Abbreviated accounts”).
All limited and public limited companies must send their
accounts to the Registrar. Annual accounts must also be submitted to
Revenue and Customs for tax calculation $purposes. There are strict
deadlines for filing annual accounts and fines can be imposed for late
filing.
An
AGM is a regular meeting of the company’s members held once in each
calendar year under the Companies Act 1985. At the AGM members usually
deal with matters such as the ratification of the previous year's
accounts (also called financial statements), the Annual Report,
appointment or termination of directors and the appointment of auditors
and generally discussing previous and future activities of the company.
Annual Report
A
document which a company (the company’s directors) present at its
Annual General Meeting for approval by its shareholders. The report is
made up of reports and of financial statements, sometimes including the
auditors’ report, the directors’ report, a mission statement, the
balance sheet, etc.
Annual Return
The
annual return (Forms 363a or 363s) is a documents that a company must
deliver every year to Companies House. An annual return is a snapshot
of general information about a company's directors and secretary,
registered office address, shareholders and share capital. If you file
the annual return late, or not at all, the company and its director(s)
and secretary can be prosecuted.
Arbitration
Arbitration is a process for the resolution of disputes outside of the courts, wherein the parties to a dispute refer it to one or more persons (the "arbitrators" or "arbitral tribunal"), by whose decision (the "award") they agree to be bound.
Arbitrator
An
Arbitrator is a disinterested person selected by agreement of
contesting parties (or by the court) to hear and settle some disputed
question between them.
Articles of Association
The
articles are a part of the company’s constitutional documents together
with the Memorandum of Association, both of which must be filed at
Companies House on incorporation. The articles regulate how the company
will be managed by its officers and members. Table A prescribes a
standard form of Articles of Association for private limited companies
(see also “Memorandum of Association”).
Audited Accounts
If
the company’s annual turnover exceeds £1,000,000, its accounts must be
audited by an appointed accountancy firm. Companies whose turnover is
less that £90,000 can dispense with audit completely. Companies whose
turnover is between £90,000 and £1,000,000 can claim exemption from
audit if they have a report by a qualified accountant.
Auditor
An
audit is an independent assessment of the fairness by which a company's
financial statements are presented by its management. It is performed
by competent, independent and objective person or persons, known as
auditors or accountants, who then issue a report on the results of the
audit.
Authorised Share Capital
The
amount of share capital stated in the memorandum of association is the
company's 'authorised' capital. The company can issue shares to its
shareholders up to the amount of the authorised share capital.
B
Balance Sheet
A
statement of the book value of all of the assets and liabilities
(including equity) of a business or other organization or person at a
particular date, at the end of a period such as an Accounting Period. A
balance sheet is often described as a "snapshot" of the company's
financial condition on a given date, all that the company owes and owns.
Bankruptcy
Bankruptcy is an option that often has to be considered when an individual cannot pay their debts as they fall due. Bankruptcy
is a legally declared inability or impairment of ability of an
individual to pay their creditors. The process of bankruptcy is
currently governed by the Insolvency Act 1986. Once declared bankrupt,
an individual may be restricted from acting as a director of a company
for a period of time of 5 years.
The
company is managed by the board of directors, who are officers of the
company. The directors are appointed by the shareholders. The
directors’ powers and responsibilities are collectively exercised by
the board. Directors of public companies generally have to be
re-elected by shareholders every 3 years which is usually just a
formality.
Business Assets
All
the assets that are used in an economic undertaking for business
purposes, including tangible property (e.g. equipment, stock, plant and
machinery) and intangible property (e.g. goodwill, contractual debts
owed to the company, intellectual property). Where a business is
referred to as a going concern it means it carries the benefit of
orders, contracts, customers and other aspects of revenue generation on
a continuing basis.
C
Certificate of Good Standing
A
Certificate of Good Standing confirms the company name, company number
and date of incorporation and it certifies that the company has been in
continuous and unbroken existence since the date of its incorporation.
It also states that no action is currently being taken by the Registrar
of Companies for striking the company off the register and dissolving
it as defunct, and as far as the Registrar is aware, the company is not
in liquidation or subject to an administration order, and no receiver
or manager of the company's property has been appointed. This
certificate will not be issued if the company is not up to date with
the filing of annual returns and accounts.
Certificate of Incorporation
A
Certificate of Incorporation will be sent to the company by the
Companies Registry on first incorporation and on any change of name.
The certificate includes the company number, name and date of
incorporation.
Chairman
A
chairman is appointed by the directors from their number and officiates
as chairman of meetings of the directors and shareholders. He may have
a casting vote on a voting tie, but his role is primarily procedural,
he does not carry greater obligations or legal responsibility than
other directors.
Charity
A
trust, company or unincorporated association established for charitable
purposes only. To be registered as a charity, the organisation must be
recognised by the Charity Commission for
Company
In the
Company Seal
This
is a device for impressing the company's name onto a red seal attached
to the document in a position where two directors or one director and
the secretary can sign as witnesses. Traditionally a company executed
deeds and other instruments, including share certificates under seal.
The mechanical seal is no longer necessary as a company seal (see s 36A
of the Companies Act 1985 abolishing the requirement to affix company
seals to a deed).
Company Secretary
The
company secretary is an officer of the company. The company secretary
ensures that the company complies with relevant legislation and
regulation, and keeps board members informed of their legal
responsibilities. They are the company’s named representative on legal
documents, and it is their responsibility to ensure that the company
and its directors operate within the law. It is also their
responsibility to register and communicate with shareholders, to ensure that dividends are paid and to maintain company records, such as lists of directors and shareholders, and annual accounts.
Companies House
The Companies House is the official government register of
Compulsory Liquidation
Compulsory
liquidation (or compulsory winding up) - this is when the court makes
an order for the company to be wound up (a 'winding-up order') on the
petition of an appropriate person. If there is more than one director,
all the directors must jointly present the winding-up petition - a
single director cannot present a winding-up petition.
Controlling Interest
A
person has a controlling interest in a company limited by shares if he
or she owns more than 50% of the issued share capital of the company
and when voting at general meetings can exercise voting power of more
than 50%.
Corporation Tax
Corporation tax is a tax levied in the United Kingdom on the profits made by UK-resident companies and associations. It is also levied on non-UK resident companies and associations which trade in the
Credit Note
A credit
note is a monetary instrument issued by a seller that allows a buyer to
purchase an item or service from that seller on a future date. Credit
notes may be issued by a seller as a goodwill gesture to a buyer who
wishes to return previously purchased merchandise (instead of cash
repayment) in circumstances where the original sales agreement did not
include an explicit refund policy for returned items. In such
circumstances, a credit note of value equal to the price of the
returned item is usually issued allowing the buyer to exchange his
purchase for other items available with the sale.
Creditor
A creditor is a person to whom money is owed whether in exchange for goods or services or under a loan agreement.
D
Debenture
A
debenture is a document or instrument that creates indebtedness owing
by the company to the debenture holder, usually carrying interest and
maturing on a particular date when the principal amount is repaid.
Debentures tend to be secured by a floating charge and/or a collection
of fixed charges over the company's assets, but they don’t need to be
secured.
Director
A
director is an officer of the company charged with the conduct and
management of its affairs. The directors collectively are referred to
as a board of directors. Sometimes the board will appoint one of its
members to be the chairman of the board. A director must be appointed
in accordance with the provisions of the articles of association.
Directors’ Register
The
Directors Register is one of the statutory registers that the company
is required to maintain showing details of the directors and secretary.
Name, address, occupation, nationality, date of birth and other
directorships are recorded. (Sections 288 and 289 Companies Act 1985).
Dividend
A
distribution of profit earned by the company to its shareholders. A
dividend must be declared by the directors from distributable profits.
Dissolution
This
is a process by which the company ceases to exist. A company is
dissolved when it is removed from the companies’ register. Once
removed, a company can only be restored to the register by a court
order.
Double Taxation Relief
Double
taxation occurs when income is taxed both by the taxpayer's country of
residence and in another country where the income arises. The purpose
of double taxation relief is to remove or reduce the disincentive that
this double taxation represents to outward investment. Double
taxation relief can be obtained when agreements exist between countries
whereby tax already paid on income in a foreign country is offset
against the same tax liability in the home country or vice versa.
E
Extraordinary General Meeting (EGM)
A meeting of company members other than an annual general meeting.
Extraordinary Resolution
A
resolution at a general meeting (AGM or EGM) which must be passed by no
less than 75% of members voting at that meeting. A meeting at which an
extraordinary resolution is to be passed must be called by a notice
specifying the exact working of the resolution. All extraordinary
resolutions must be filed at the Companies House within 15 days of them
being passed.
F
Fiduciary Duty
Company
directors owe a duty to the company to act in its best interests. They
must not put their personal interests before the duty, and must not
profit from their position as a fiduciary, unless the company (i.e. the
shareholders) consents. The fiduciary relationship is highlighted by
good faith, loyalty and trust.
Financial Year
The period starting and ending on the Accounting Reference Date in relation to which the company produces its annual accounts.
Floating Charge
This
is a type of security granted by a company over its assets. The
difference from a fixed charge is that the floating charge is not
attached to any specific assets, but can attach over a whole class of
assets owned by the company on the moment of crystallization of the
floating charge. Crystallization means that whatever assets are touched
by the floating charge can now be used to repay to debt that was
secured by it, even though they could have been disposed of by the
company before crystallization.
G
General Meeting
This
is a meeting of the shareholders for the purpose of passing resolutions
and exercising their power of control over the company. There are two
kinds of a General Meeting: Annual and an Extraordinary. General
Meetings are usually called by sending a formal notice to all members.
Members can vote at General Meetings in person or by appointing a proxy.
H
Holding Company
Broadly,
this is a company that owns or has an interest in one or more
subsidiary companies. A definition of a Holding Company is provided in
s. 736 of the Companies Act 1985.
I
Incorporation
Incorporation is a process of creating and registering a company. In the
Insolvency
Insolvency is a situation when a company is unable to pay its creditors what it owes to them. When the assets are less than liabilities, this is commonly referred to as 'balance-sheet' insolvency. When the company can no longer meet its debt
obligations when they come due, this is commonly referred to as
'cash-flow' insolvency. A company which is insolvent may be put into liquidation (sometimes referred to as winding-up).
Issued Share Capital
As
opposed to the Authorised Share Capital, this is the amount of shares
that has been actually allotted to the shareholders. The division of
the issued share capital indicates the voting power of the shareholders
(see also Controlling Interest).
J
Joint and Several Liability
This
liability means that two or more people together are liable for a debt.
The creditor can sue either one or all of them to recover the debt. If
the creditor sues one of the parties and recovers the debt in full,
that party can sue all the others to make them contribute towards the
debt in a certain proportion.
Joint Venture
An
entity formed between two or more parties to undertake economic
activity together. The parties agree to create a new entity by both
contributing equity, and they then share in the revenues, expenses,
and control of the enterprise. The venture can be for one specific
project only, or a continuing business relationship. This can take form
of a contractual arrangement, partnership or a company.
L
Lien
Lien
is a specific type of security interest, being a passive right to
retain (but not sell) property until the debt or other obligation is
discharged.
Limited Liability
A
concept whereby a person's financial liability is limited to a fixed
sum, most commonly the value of a person's investment in a company or
partnership with limited liability. A shareholder in a limited liability company
is not personally liable for any of the debts of the company, other
than for the value of his investment in that company. The same is true
for the members of a limited liability partnership and the limited partners in a limited partnership. By contrast, sole proprietors and partners in general partnerships are each liable for all the debts of the business (unlimited liability).
Liquidation
Liquidation refers to the process by which a company
is brought to an end, and the assets and property of the company
redistributed. Liquidation can either be voluntary or compulsory.
Usually a liquidator is appointed to manage the company’s assets in
liquidation and distribute the proceeds to the creditors and
shareholders.
M
Memorandum of Association
This
is one of two constitutional documents required to incorporation a
limited company. The Memorandum contains the intended name of the
company, the address of its registered office, authorised shares
capital and the classes of shares, the statement of limited liability
and the objects of the company (description of what the company may do).
Minutes
Under
the Companies Act 1985 every general meeting and board meeting must be
have a record of the proceedings. This is usually a written summary of
the meeting prepared by the secretary and containing the resolutions
made at the meeting and any statutory declarations that would have to
be made.
N
Nominal Value
This
is the value of a share as stated in the memorandum and on the share
certificate (if any). The shares can be issued to shareholders at
nominal value or at a premium (i.e. at a price above what is indicated
on the shares).
Non-Executive Director
A non-executive director or outside director is a member of the board of directors
of a company who does not form part of the executive management team.
He or she is not an employee of the company or affiliated with it in
any other way.
O
Officers
Officer
is a person appointed to a position in the company such as director or
secretary. They owe duties to the company and the shareholders and
carry out the duties prescribed by statute.
Ordinary Resolution
A resolution passed at a shareholders meeting by a simple majority, i.e. majority not less than 50% plus one vote.
Ordinary Shares
An
ordinary share is a default type of share issued by a company. An
ordinary share carries the right to vote at general meetings at one
vote per share, receive dividends and participate in the division of
assets if a company is wound-up.
P
Parent Company
This
is a company that owns one or more subsidiary companies and has
majority control over them. The definition of a parent company can be
found in s. 736 Companies Act 1985.
Partnership
A
partnership is a business carried on by two or more persons with a view
to a profit, where the partners share liability and profits under an
agreement. A partnership arises when the requirements in s1 Partnership
Act 1890 are fulfilled. The partnership can be governed by a
partnership agreement or by a tacit agreement between the parties.
Ordinarily partnerships do not provide limited liability, unless they
are a limited liability partnership (LLP).
Private Limited Company
This
is a Company (see Company) where members benefit from a limited
liability and whose shares cannot be offered to the general public.
Power of Attorney
A
document given by one person (the Donor or Grantor) to another person
(the Attorney), which is an authorisation to act on someone else's
behalf in a legal or business matter.
Public Limited Company
A
Company that offers limited liability to its members and is permitted
to offer its shares for sale to the general public. There a strict
requirements and regulations applicable to public limited companies,
e.g. a minimum capital investment of £50,000.
Q
Quorum
This
is a minimum number or persons (shareholders or board members) that
must be present at a meeting in order for the meeting to be valid.
Usually the quorum fixed by the Articles of Association is two, but the
number can be reduced by changing the articles.
R
Receivership
This
is a situation when one or more of the company’s assets are subject to
a charge or a mortgage that secures a loan to the company. If a company
defaults on its loan repayment, the charge holder can appoint a
receiver to sell the charged asset and recover the loan amounts from
the proceeds.
Redemption of Shares
A
company can buy back its own shares buy repaying the value of the
shares to the shareholders. Such shares are called redeemable shares
and the process is the redemption.
Registrar of Companies
This is the official government body responsible for maintaining a register of all companies incorporated in the
Registered Office
This
is the official address of a company that is held on the Companies
Register. All statutory documents from the Companies house will be sent
to this address. This address will show up on all public records.
Register of members
This
is a statutory register that all companies must maintain under s. 352
Companies Act 1985. The register of members must contain the following
information: the shareholder’s name, address, number of shares held,
amount paid up on the shares, and the dates what the shares where
bought or transferred.
Resolution
This
is a decision of either the members of the company at a general meeting
or of the board at a board meeting. See also: Extraordinary Resolution,
Special Resolution, Ordinary Resolution.
S
Share
This
a unit of ownership in a company that has an economic value. Shares in
a company usually give the holder a right to vote and exercise control
of the company; receive dividends and capital distributions from the
company. Each share has a nominal value and is a part of the authorised
share capital. Ownership of shares is evidenced by an entry on the
members’ register and a Share certificate. Shares can be sold,
transferred or transmitted under the provisions of the Articles of
Association. Shares of private limited companies cannot be offered for
sale to the general public, but shares of public companies can.
Share Capital
Share
capital refers to portion of a company's equity that has been obtained
(or will be obtained) by trading shares to a shareholder for cash or
equivalent item of capital value. See also Authorised Share Capital and
Issued Share Capital.
Share Certificate
This
is a document issued to a shareholder on purchase of shares of a
company. The share certificate must show the company name,
incorporation number and date, the authorised share capital, the amount
and the type of shares issued, the total value of the shares, the
numbers of shares issued, the name and address of the shareholder and a
signature from the director and/or a company seal.
Shareholder
This is a person or a company who owns at least one share in a company.