Partnership and Limited Company are 02 of widelyrecognized business structures of forming a business.Partnership defined as a legal form of businessoperation between two or more individuals who share management and profits.Partnership considered to be a more simpler and lessexpensive structure to establish a new business. Partnership consist offollowing strengths weaknesses.Strengths§ Capital – Opportunity to invest more capital into thebusiness, with the availability of more partners.§ Flexibility – A Partnership typically easier to form due to lessgoverning laws and lower start-up costs.
§ SharedResponsibility – Members able to sharethe responsibility which reduces business risk.§ Accurate DecisionMaking – Collaborative decision-makingleads to more accurate decisions.Weaknesses§ UnlimitedLiability – Each of the partners mustshare the unlimited liability and financial risks of the business.§ Disagreements andDisputes – Partners are likely tohave various opinions on running the business, where there is a possibility of disagreementsand disputes which can have negative impact on the business.§ Profit Sharing – Partners share the profits of the business equallywhich can lead to inconsistency for the partners who put more effort and capitalwhen running the business.
§ Taxation – Partners must pay tax to government on behalf ofbusiness. Limited Company is a legal form of a businessstructure which protects the owner’s personal assets from financial liabilitywhere the business itself accepted as separate entity from its owners by law.Limited Company is more expensive and more advancedbusiness form compared to partnership and it consists of following strengthsand advantages.Strengths§ Limited Liability– This is the main benefit of Limited Company.This means if business becomes bankrupted, its members liability limited only tothe amount of their investments.§ High Capital – Limited Company can sell shares among its membersand since there are more members it offers business to gather more funding forthe growth of the business.
§ Separate BusinessEntity – Limited Companiesconsidered as separate legal entity from its owners by law.§ Tax Advantages – Limited Companies are taxed on their profits andsuch are not subject to pay higher income tax which benefit its directors andmembers.Weaknesses§ Cost – There are more start-up expenses occur whenstarting a Limited Company.§ Restricted CapitalRaising – Limited Company onlyallowed raise capital via sale of share to its members and cannot offer sharesto public.
§ Complex Accounts – It is compulsory by law to maintain accounts foreach financial year.§ Dilution of Powers – Since Limited companies can buy shares, there is arisk of turnover.Mr. Fernando and Perera should start their restaurantbusiness as a Partnership.
They will be able to take advantage of flexibilitycompared to more governing laws of Limited Company. In this regard, they willonly require to prepare a partnership contract or follow the general guidelinesgiven by law whereas they do not need to spent more time and money for startingup the business. Since this is a start-up business they will require lessstart-up capital but if they require more funding in long term, they canconvert Partnership into a Limited Company which offer more funding options. Inorder to avoid disputes occur regarding Partnership, they can prepare apartnership contract. Mr. Fernando and Perera will be able to recruit high-calibreprofessionals as partners which can lead to growth of business.
Therefore,Partnership offers more flexible and simpler business structure to start arestaurant without much legal restrictions by the government. QUESTION 02Financial Accounting and Management Accounting are 02main aspects of the Accounting. There are following distinctions betweenFinancial Accounting and Management Accounting.§ Purpose – The purpose of financial accounting is to deliver financialinformation to the relevant parties such as investors, regulators, taxauthorities. This financial information is distributed among both internal andexternal parties such as shareholders, regulators.
Purpose of ManagementAccounting is to deliver information to internal parties of the business suchas managers for decision-making of the business. In this regard, FinancialManagement communicate information to both internal and external partieswhereas Management Accounting communicate information only to internal parties. § Time Period – Financial Accounting Statements are prepared for afinancial year.
These statements prepared by using data of past transactions.Therefore, Financial Accounting uses historical (past) data for reporting. Onthe contrary, Management Accounting reports are not prepared for a specifictime period where Management Accounting uses forecasted data to prepare reportssuch as budgets, forecasts. Therefore, Management Accounting uses futureoriented data whereas Financial Accounting uses past oriented data. § Standards – Financial Accounting reporting has variousstandards to be followed. In this case Financial Accounting reporting mustcomply with standards given by the responsible financial authorities whereasManagement Accounting does not require to comply with any standards since theinformation is prepared for internal consumption.