Reasons behind the Existence of Sole Trader, Company and Partnership Firms and Difference between Forms of Share Capital and Long Term Debt

Accounting Business

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Reason behind existing of three various types of business..........................................................3
Difference between forms of share capital and forms of long term debt.....................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................1

INTRODUCTION
Accounting practice is very important in very business in order to know its profitability. This
report will discuss that why sole trader, company and partnership firms exists. Further it will
also shed light on the difference within long term debt and share capital.
MAIN BODY
Reason behind existing of three various types of business
Sole traders are the business which is owned by single individual only. He or she is solely
responsible for carrying his or her business. all the important decision in this business is taken by
sole traders himself or herself only (Ratnasari and Muniarty, 2020). They are the self employed
people who run their business on their own rules and regulations. In order to pay the creditors,
personal assets of sole trader is also at risk. This is one of the simple business structure.
Although an individual who is running the business is solely responsible for all the business
decisions. Example freelancers, gig economy workers etc.
Partnerships are the business between two or more than two business partners. Under
partnership firms all the partners share profits in the agreed profit sharing ratio. Investment is
done by partners as per already decided. There are two types of partners one partner only invests
in the business and in other partnership, partner do not invest by acts as the working partner.
There is partnership agreement between all the partners. In the partnership firm all partners are
responsible for the profit and loss of the business. Partnerships are easy to set up and are also tax
friendly when compared with companies (Falato, Kadyrzhanova, Sim and Steri, 2020).
Example of partnership firms- airbnb and flip kart, uber and spotify etc.
Companies are the artificial person which is form by group of people Which have limited
liability. They are the structured corporation, company may be either public or can be private.
They are also registered on stock exchange so that general public can purchase share in the
company. Profit is given to the shareholders of the company in the form of dividend. Company
have some legal responsibilities and they are entitled legally while carrying their business
operations. Funds in the company is obtained from the public or pooled from investors. Example
Tesco, Sainsbury etc.