Lecture Notes: Recording the Issue of Shares and Debentures for LLCs

Introduction to Limited Liability Companies (LLCs)

• LLCs provide limited liability to owners, meaning owners' personal assets are protected in case of bankruptcy.
• In contrast, sole traders and partnerships have unlimited liability.
• Owners' liability is limited to their investment in the company.

Advantages of LLCs

• Personal assets are not at risk.
• Potential to raise more capital compared to sole traders/partnerships.
• Can sell shares to raise capital.

Types of Companies

• Private LLC: Limited to specific owners; less capital raising.
• Public LLC: Can issue shares to the public; large capital potential but risk of takeover.

Raising Capital through Shares

• Shares: Units of ownership; like slices of a pizza.
• Shareholder: An owner of shares in a company.
• Ordinary Shares (Common Stock): Basic shares of company ownership.
• Preference Shares: Fixed dividend rate; no voting rights.

Issuing Shares

• At Par Value: Issue price equals the nominal value.
• Premium: Issued above par value; excess goes to share premium account.
• Authorized Share Capital: Maximum number of shares the company can issue.

Example Journal Entries for Shares

1. Ordinary Shares at Par Value: Increase bank, credit ordinary share capital.
2. Ordinary Shares at Premium: Debit bank, credit share capital and share premium.
3. Preference Shares: Similar entries with focus on preference share capital and premium.

Debentures

• Debenture: A type of loan; interest bearing.
• Journal Entry for Debenture Issue: Debit bank, credit debentures account.

Combined Issues of Shares and Debentures

• Example of combining journal entries for ordinary shares, preference shares, and debentures.

Balance Sheet

• Reflects how shares and debentures impact the assets, liabilities, and equity sections.
• Two formats: assets = capital + liabilities OR assets - liabilities = capital.

Conclusion

• Understanding journal entries for shares and debentures is crucial for recording financial transactions in LLCs.
• Importance of practice and adaptation to improve financial accounting skills.