Accounting for Business: Types of Enterprises and Forms of Finance

This report outlines the three different types of business enterprise and difference between two forms share capital and two forms of long-term debt in source of finance of listed public limited companies. It covers sole traders, partnerships, and companies, along with equity and preference share capital and loans and bonds. Course code, name, and university not mentioned.

ACCOUNTING FOR
BUSINESS

Table of Contents
INTRODUCTION...........................................................................................................................1
Task..................................................................................................................................................1
A. Three different types of business enterprises with examples.................................................1
B. Difference between two forms of share capital and two forms of long-term debt in context
of source of finance of listed public limited companies.............................................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Accounting for business is associated with recording, analyzing, interpreting and
presenting the information related to the finance of the company. It has a vital role because it
helps the organization to record the expenses and also provides the proper management. This
report will outline the three different types of business enterprise and difference between two
forms share capital and two forms of long-term debt in source of finance of listed public limited
companies.
Task
A. Three different types of business enterprises with examples
Sole Traders: Sole traders are commonly referred as sole proprietorship, which is
engaged in a simple business in which single person only run and acquire the whole business.
All the profits and losses are in the hands of single person only (Kasahun, 2020). It is one of the
easiest business to setup as less capital is required in order to start the business. It is easy to start
and easy to wind-up whenever required by the proprietor. The main drawback of this business
structure is that they do not have any protection from the government. All the liabilities are
borne by the individual only. For example, Ebay, Walmart, J.C. Penney and Marriott Hotels are
some sole traders in the United Kingdom. These firms work as sole proprietor and enjoys the
profit and bear all the looses by themselves only.
Partnerships firms: Partnership means doing agreement between two or more partners
in order to start a new business in an already decided ratio. It is also very easy to start as
different partners gives their share as a capital or asset as their share in the firm. It includes any
type of business, occupation or profession to start a partnership firm (Horan, 2019). The profits
are share among the members in the decided ratio. The firm can be carried on by all or any of
them stating themselves as a partner of the partnership firm. There is an agreement between the
partners in which they decide the name of the firm, agreed ratio, name of partners, occupation
carrying by them, etc. For example, Uber and Spotify, Apple and master card, BMW and Louis
Vuitton are the partnership firms of the U.K. This makes them to share their profit and looses in
decided ratio.
Companies: A company is defined as the legal entity which formed by having group of
members engaged in doing some commercial business or industrial business (Heyes and et.al.,
2018). Companies can be either private or public. Public companies are those whose share
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capital are listed on the stock exchange where private companies are those which are not public
companies. In this, lots of government interventions are there as they are registered. It is
generally structured to earn the profit from doing the activities related to the business (The 4
Major business organization forms, 2021). Every country has its corporate structures with
having some similarities. The liabilities of the members are limited in the company. A company
is an artificial person and having a separate entity. There are some examples of the companies in
United Kingdom which are incorporated as the companies- Unilever, HSBC Holdings,
AstaZeneca, BHP group etc. These are the largest operating companies of U.K.
B. Difference between two forms of share capital and two forms of long-term debt in context of
source of finance of listed public limited companies
Share capital is the amount or money given by the shareholders to the company in order
to purchase the shares of the organization and earn profit from them. It is also called as capital
stock in the united states.
Difference between two forms of share capital are:
Equity share capital Preference share capital
Equity shares are the ordinary shares, in
which dividend claimed and return of capital
is only given after the full payment by
shareholders.
Preferences share capital are those share in
which shareholder enjoys the preferences
over the equity share capital and enjoys
dividends and return.
Dividend are paid at the changing rates in
the market.
Dividend are paid at the fixed rate decided
by the company.
The equity shareholders enjoys the voting
rights in the management of the organization
(Seo, Park and Choi, 2020).
The preference shareholders did not enjoy
the voting rights in the management of the
company.
Face value of the equity share is Rs 10/- or
even low.
Face value of the preference shares is
Rs.100/-
The risk in equity share capital for providing
dividend and return on capital is not certain.
The risk is lower due to having preferences
in getting dividend and return on capital.
Equity shares are irredeemable during the Preference shares can be redeemable as the
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life of the organization. agreement by the company.
Long-term debts are the debt which has a maturity period of more than one year. This
includes term loan, bonds and mortgage (Vitolla and et.al., 2020). In listed public limited
companies they must have long-term debt which helps them to meet the future obligations.
Differences between two forms of long-term debt
Loans Bonds
It is and debt instrument which is provided
by the bank in order to meet the obligations
of the organization.
It is a financial or debt instrument which is
used to borrow capital from the market.
It can be for short term or for long term, as
per the needs of the company.
Its is always taken for long-term as it is
borrowed capital.
Fixed installments are given by the company
in order to pay the taken loan from the banks
which may lowers the profit of the company.
Fixed interest payment is given by the
company as it is borrowed capital which may
reduces the profitability of the organization.
It increases the equity ratio if taken for long-
term.
It increases the debt to equity ratio of the
company.
By taking loans, the debt of the organization
increases if taken for more than one year.
By borrowing capital it increases the
proportion of debt in the company.
CONCLUSION
From the above study it has evaluated that there are three types of business enterprise
which are sole trader in which only single person act and enjoys the profit, partnership firms in
which two or more than two partners start the business, and company in which there are groups
of individuals working. Further, this report describes the difference between two forms of share
capital that is equity and preference and two form of long-term debt that is loan or bonds.
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REFERENCES
Books and Journals
Heyes, G. and et.al., 2018. Developing and implementing circular economy business models in
service-oriented technology companies. Journal of Cleaner Production. 177. pp.621-
632.
Horan, D., 2019. A new approach to partnerships for SDG
transformations. Sustainability, 11(18), p.4947.
Kasahun, A. K., 2020. The Impact of Working Capital Management on Firms’ Profitability-Case
of Selected Sole Proprietorship Manufacturing Firms in Adama City. IOSR Journal of
Economics and Finance (IOSR-JEF). 11(1). pp.45-55.
Seo, E. J., Park, J. W. and Choi, Y. J., 2020. The effect of social media usage characteristics on
e-WOM, trust, and brand equity: Focusing on users of airline social
media. Sustainability. 12(4). p.1691.
Vitolla, F. and et.al., 2020. The impact on the cost of equity capital in the effects of integrated
reporting quality. Business Strategy and the Environment. 29(2). pp.519-529.
Online
The 4 Major business organization forms. 2021. [Online]. Available through:
<https://www.rifkindpatrick.com/Blog/2015/November/The-4-Major-Business-
Organization-Forms.aspx>.
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