The Company's Liabilities

The Company's Liabilities

The Company's Liabilities

Liabilities are the company's monetary responsibilities to shareholders and others. These may be classified in the order of permanence as follows:

I. PERMANENT LIABILITIES. The share capital (prefer-ence and ordinary shares) and the accumulated reserves are in essence a permanent liability of the company to its shareholders, because it is only in the event of liquidation that holders of ordinary shares are entitled to repayment of capital, ix, they would then receive what remains after the claims of all other interested parties, e.g., bank overdraft secured by mortgage, debenture and loan stock holders, trade creditors and preference shareholders (in that order of priority), have been settled. During the life of a company, the company has no intention of repaying the ordinary shareholders their capital. If any ordinary shareholder wishes to realise his share of the company's capital he can do so through the stock market. Preference share capital is also 'permanent' unless It is specifically-redeemable in the future in which case it is more of a long-term liability.

2. LONG-TERM LIABILITIES are those which remain outstanding for a long term of years, such as 'debentures' and 'loan stock'.

3. MEDIUM-TERM LIABILITIES. These are the liabilities to be dealt with in the foreseeable future, such as future taxation and employees' benefit fund, sometimes called deferred liabilities.

4. SHORT-TERM or CURRENT LIABILITIES, which are due for immediate or early settlement, such as bank overdraft, trade creditors, current taxation and proposed dividends.


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