Partnership Company can sell shares among its members

Partnership and Limited Company are 02 of widely
recognized business structures of forming a business.

Partnership defined as a legal form of business
operation between two or more individuals who share management and profits.

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Partnership considered to be a more simpler and less
expensive structure to establish a new business. Partnership consist of
following strengths weaknesses.

Strengths

§  Capital – Opportunity to invest more capital into the
business, with the availability of more partners.

§  Flexibility – A Partnership typically easier to form due to less
governing laws and lower start-up costs.

§  Shared
Responsibility – Members able to share
the responsibility which reduces business risk.

§  Accurate Decision
Making – Collaborative decision-making
leads to more accurate decisions.

Weaknesses

§  Unlimited
Liability – Each of the partners must
share the unlimited liability and financial risks of the business.

§  Disagreements and
Disputes – Partners are likely to
have various opinions on running the business, where there is a possibility of disagreements
and disputes which can have negative impact on the business.

§  Profit Sharing – Partners share the profits of the business equally
which can lead to inconsistency for the partners who put more effort and capital
when running the business.

§  Taxation – Partners must pay tax to government on behalf of
business.

 

Limited Company is a legal form of a business
structure which protects the owner’s personal assets from financial liability
where the business itself accepted as separate entity from its owners by law.

Limited Company is more expensive and more advanced
business form compared to partnership and it consists of following strengths
and advantages.

Strengths

§  Limited Liability
– This is the main benefit of Limited Company.
This means if business becomes bankrupted, its members liability limited only to
the amount of their investments.

§  High Capital – Limited Company can sell shares among its members
and since there are more members it offers business to gather more funding for
the growth of the business.

§  Separate Business
Entity – Limited Companies
considered as separate legal entity from its owners by law.

§  Tax Advantages – Limited Companies are taxed on their profits and
such are not subject to pay higher income tax which benefit its directors and
members.

Weaknesses

§  Cost – There are more start-up expenses occur when
starting a Limited Company.

§  Restricted Capital
Raising – Limited Company only
allowed raise capital via sale of share to its members and cannot offer shares
to public.

§  Complex Accounts – It is compulsory by law to maintain accounts for
each financial year.

§  Dilution of Powers – Since Limited companies can buy shares, there is a
risk of turnover.

Mr. Fernando and Perera should start their restaurant
business as a Partnership. They will be able to take advantage of flexibility
compared to more governing laws of Limited Company. In this regard, they will
only require to prepare a partnership contract or follow the general guidelines
given by law whereas they do not need to spent more time and money for starting
up the business. Since this is a start-up business they will require less
start-up capital but if they require more funding in long term, they can
convert Partnership into a Limited Company which offer more funding options. In
order to avoid disputes occur regarding Partnership, they can prepare a
partnership contract. Mr. Fernando and Perera will be able to recruit high-calibre
professionals as partners which can lead to growth of business. Therefore,
Partnership offers more flexible and simpler business structure to start a
restaurant without much legal restrictions by the government.

 

 

QUESTION 02

Financial Accounting and Management Accounting are 02
main aspects of the Accounting. There are following distinctions between
Financial Accounting and Management Accounting.

§  Purpose – The purpose of financial accounting is to deliver financial
information to the relevant parties such as investors, regulators, tax
authorities. This financial information is distributed among both internal and
external parties such as shareholders, regulators. Purpose of Management
Accounting is to deliver information to internal parties of the business such
as managers for decision-making of the business. In this regard, Financial
Management communicate information to both internal and external parties
whereas Management Accounting communicate information only to internal parties.

 

§  Time Period – Financial Accounting Statements are prepared for a
financial year. These statements prepared by using data of past transactions.
Therefore, Financial Accounting uses historical (past) data for reporting. On
the contrary, Management Accounting reports are not prepared for a specific
time period where Management Accounting uses forecasted data to prepare reports
such as budgets, forecasts. Therefore, Management Accounting uses future
oriented data whereas Financial Accounting uses past oriented data.

 

§  Standards – Financial Accounting reporting has various
standards to be followed. In this case Financial Accounting reporting must
comply with standards given by the responsible financial authorities whereas
Management Accounting does not require to comply with any standards since the
information is prepared for internal consumption.

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