Chapter 7

Limited Companies
(1) Explain two differences between(1) ordinary shares and (ii) debentures.
ordinary share Debentures
Rewards Pay dividend to share holders Pay interest to debenture holders
Dividened is at variable amount interest payable is at fixed amount
at variable interval and at fixed interval
Voting rights Has voting right has no voting rights
incase of liquidation Principal sum is not guaranteed Debenture holders will get
back the principal sum invested


(2)Explain briefly what you understand by the following:
(i)Interim Dividends
(ii)issued ordinary share capital
(iii)Debetures

(i) Interim dividends:
~share of profit
~Rate vary with different classes of shares
~Dividends payable before the clse of the financial period

(ii)Issued share capital
~portion of the Authroised share capital
~offered to the public for subscription

(iii)Debentures
~represents loans to the limited company
~at a fixed rate of interest
~Its an expense to the company
~Must be paid whether profits are earned or not

(3)Explain two differences between dividend and intereset.
Dividends are calculated based on the profits of the business.It is given to the shareholders.
Interest is calculated based on the amount of loan taken.It is paid to the creditors

(4)Exlpain the difference between
(i)Prefrence Shares and Ordinary Shares
(ii) Debentures and shares
(iii) Authorized Share Capital and Issued Share Capital

Preference Ordinary shareholders
Shareholders
~Have no voting rights ~have voting rights
~get a fixed rate of dividend ~get varyubg rates if dividends
~get 1st priority to dividends ~get 2nd priority to dividends
~get 1st priority to distribution of ~ are the last to be paid upon liquidation
assets upon liquidation