You Earn tax a lot easier for individuals. Many tax deductions are easier to substantiate for corporations than non-incorporate bodies. Because dividends can not be paid out of capital, it is important that a company separate its owner's equity accounts into those associated with capital contributions, and those resulting from the profits earned by the firm. Firstly let us look at the accounting entries required to form a company. Capital Accounts Authorised Capital - This is not normally an actual account, but a calculation.
Most firms list a very high value for authorised capital, but it is a meaningless figure.
This account is where contributions of capital by owners go. When a company issues shares it is similar to the contribution of capital made by the owner of a sole proprietorship. The par value is simply a notional amount ascribed to each share. Cr Paid Up Capital 10000 Reserve Accounts Reserve Accounts contain balances that can be distributed to shareholders as dividends. The share premium reserve is not indicative of a profit, but according to the law can be distributed as dividends.