Partnership and Limited Company are 02 of main businessformation types.Partnership defined as a legal form of business operationbetween two or more individuals who share management and profits.Partnership considered as a more simpler and less expensivetype to form a new business. Partnership consist of following strengthsweaknesses.StrengthsCapital –Opportunity to invest more start-up capital, since there are more partners.Flexibility – APartnership generally easier to establish due to less governing laws andstart-up costs are low.Shared Responsibility– Members share the responsibility which reduces business risk.
Accurate DecisionMaking – Collaborative decision making helps to make more accuratedecisions.WeaknessesUnlimited Liability –Each of the partners have to share the unlimited liability and financial risksof the business.Disagreements andDisputes – Partners are likely to have different ideas on running thebusiness, where this can lead to disgreements and disputes which has negativeimpact on the business.Profit Sharing –Partners share the profits of the business equally which can lead toinconsistency for the partners who put more capital and effort when running thebusiness.
Taxation –Partners have to pay tax to government on behalf of business. Limited Company is a legal form of a business structurewhich protects the owner’s personal assets from financial liability where thebusiness itself considered as separate entity from it’s owners.LC is more advanced and more expensive business form,compared to partnership and it consisi of following strengths and advantages.StrengthsLimited Liability –This is the main benefit of LC. This means if business becomes bankrupted, itsmembers liability limited to amount of their investments.High Capital -Since there are more members it offersbusiness to gather more funding for the growth of the business.Separate Business Entity – Limited Companies considered asseparate legal entity from its owners by law.
Tax Advantages – Limited Companies are taxed on theirprofits and such are not subject to pay higher income tax which benefit itsdirectors and members.WeaknessesCost – There are more set-up expenses occur when starting aLimited Company.Restricted Capital Raising – Limited Compay only allowedraise capital via sale of share to its members and cannot offer shares topublic.
Complex Accounts – It is compulsory to maintain accounts foreach financial year by law.Dilution of Powers – Since Limited companies can buy shares,there is a risk 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 required 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 highcalibre professionals as partners which can lead to grow the business.Therefore Partnership offers more flexible business structure to start arestaurant without much legal restrictions by the government. Question 02Financial Accounting and Management Accounting are 02 mainaspects of the Accounting. There are following distinctions between FinancialAccounting and Management Accounting.
Purpose – The purposeof financial accounting is to communicate financial information to the relevantparties such as investors, regulators, tax authorities. This financialinformation are distributed among both internal and external parties such asshareholders, regulators. Purpose of Management Accounting is to deliverinformation to internal parties of the business such as managers for decisionmaking of the business. Time Period –Financial Accounting Statements are prepared for a financial year. These statementsprepared by using data of past transactions. Therefore Financial Accountinguses historical (past) data for reporting. On the other hand ManagementAccounting reports are not prepared for a specific time period where ManagementAccounting uses forecasted data to prepare reports such as budgets, forecasts.
Therefore Management Accounting uses future oriented data whereas Financial Accountinguses past oriented data.Standards –Financial Accounting reporting has various standards to be followed. In thiscase Financial Accounting reporting must comply with standards given by the responsiblefinancial authorities whereas Management Accounting does not require to complywith any standards since the information is prepared for internal consumption.