Limited Liability Company-1
Limited Liability Company-1
Limited Liability Company-1
Johnson
Principles of Accounts
Grade 11
2022-2023
Topic: Accounting for Limited Liability Companies
Class Objectives:
Features
1. Separate Entity
LLC is a separate legal entity; meaning thereby that it can own a property, retain attorneys, sell
or buy a property, etc on its own. It is distinct from its owners. Owners are not responsible for the
obligations of the corporation.
2. Limited Liability
One of the features of LLC is the limited liability of the employees, members, managers, etc. It
simply means that the members are not responsible for the misdeeds, legal faults of the other
members. Hence, they have protection for the same. But they are responsible for their own
wrong legal misconducts.
3. Tax Ease
This feature of LLC gives the members of the corporation an option to tax themselves either as a
sole proprietorship, partnership or as a corporation unless otherwise stated. Sole proprietorship-
as a single member, partnership- as a group of members, and corporations- as a single or
Prepared By: Ms. A. Johnson
multi-members. By choosing the right type of corporate structure, it helps the LLC members to
decide which of them is the most suitable and profitable for them.
4. Simplicity
There is a simplicity in the case of documentation and carrying out operations of the company.
There is a less record keeping comparatively.
5. Flexibility
While the corporations continue to operate in case of any death or if anybody leaves. However,
this condition is not compulsory in the case of LLC. It is fully the member’s decisions whether or
not to continue in the same company or create their new one.
1. Reinvesting profits
2. Issuing of Shares (preference shares and ordinary shares)
3. By borrowing through banks or bonds
Types of shares
● Preference Shares –Preference shareholders get an agreed percentage rate of dividend
before the ordinary shareholders receive anything. preference shareholders have:
▪ No voting rights
● Ordinary Shares- ordinary shareholders receive the remainder of the total profits
available for dividend. There is no upper limit to the amount of dividends they can
receive. Ordinary shareholders have the following rights:
The company invites people to apply for the shares. If the full amount is to be paid on
application, then the would be shareholders sends in $1 for each shares they have applied for. if
the person sends in more money than the number of shares to be allotted, then refund will have
to be made for access application.
Example 1:
The company has 10,000 ordinary shares of $1 each to issue. Exactly 10,000 shares are applied
for with the applicants paying $1 per share. The shares are then allotted.
General Journal
DR CR
$ $
Bank 10,000
Ordinary Share Capital 10,000
To record the issue of 10,000 ordinary shares at $1
The company has 150,000 10%preference shares of $2 each to issue. Exactly 150,000 shares are
applied for with the applicants paying $2 per share. The shares are then allotted.
General Journal
DR CR
$ $
Bank 300,000
10% Preference Share Capital 300,000
To record the issue of 150 000 10%preference shares at
$2
Example to try:
The company has 300,000 ordinary shares of $0.50 each to issue. Exactly 300,000 shares are
applied for with the applicants paying $0.50 per share. The shares are then allotted.
General Journal
DR CR
$ $
Bank 150,000
Ordinary Share Capital 150,000
Prepared By: Ms. A. Johnson
Example 2:
The company has 20,000 ordinary shares of $2 each to issue. Applications, with the payment, are
received for 23, 000 shares. Refund is made in respect of the excess money received.
General Journal
DR CR
$ $
Bank (23,000 X $2) 46,000
Ordinary share applicant 46,000
To record application for 20,000 $2 ordinary shares
oversubscribed- applicants for 23,000 $2 shares was
received.
Ordinary share applicants (3000 X 2) 6000
Bank 6000
To record refund oversubscribed shares (3000 X $2)
Ordinary share applicant 40,000
Ordinary share capital 40,000
To record the allocation of 20,000 $2 ordinary shares
NB: Ordinary share capital is the sum of money raised by a corporate from private and
public sources through the issue of its common shares.
Prepared By: Ms. A. Johnson
Please use the link provided below to watch a video on how to record journal entries for the
issuing of shares and debentures.
https://www.youtube.com/watch?v=KFh543bRnGY