Different Types of Business Enterprise and Forms of Share Capital and Long Term Debt

This report discusses the different types of business enterprise, including sole trader, partnership, and company structures. It also critically distinguishes between two forms of share capital (common and preferred stock) and two forms of long term debt (mortgage loans and bonds).

Accounting for Business
TABLE OF CONTENT
INTRODUCTION...........................................................................................................................2
MAIN BODY..................................................................................................................................2
Three different type of business enterprise:.................................................................................2
Critically distinguishing between two forms of share capital and two form of long term debt:. 3
Share capital:...............................................................................................................................3
Long term debt:............................................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................7
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INTRODUCTION
Every business organization follow one particular type of structure, these structure allow
them to decide more effective way to manage and run an business. Different type are; sole trader,
partnership and limited company. This report will discuss different type of business enterprise
and later this report will discuss two form of share capital and two form of long term debt.
MAIN BODY
Three different type of business enterprise:
Sole trader: sole trader means those self employed people who tend to start business by their
own without any partner, these entrepreneurs raise funds by their own through various
investment process such as loans from bank, friends and family. Sole trader do not have heavy
legal formalities but they need to register their self employed assessment to HMRC (Her
Majesty’s Revenue and Customs) and need to register their legal company name on income tax
portal for tax return policy of the government (Dungan, 2017). Sole trader can fairly trade in the
country and can earn profit from any state, many sole trader face challenges of raising funds. It is
very clear that arranging funds for start up and running an business is not easy, there are many
scheme of UK government which allow sole trader to access loan and start their enterprise with
low interest rate. Gemma Lawton-Bryant, she is most successful sole trade who run GLB graphic
and won British Small Business Awards.
Partnership: partnership is another most common type of business organization which allow
two or more than two person to form a company and share profit and loss equally or according to
their preference. To form an partnership, there are no legal formalities but it is recommend for
both the partners to form an agreement which provide clear understanding of every necessary
details while running an business together, this will ensure that both partners remain safe from
any kind of future uncertainty or conflict between partners (Frydlinger, Hart and Vitasek, 2019).
To form an legal partnership structure, one of the partner have to become nominate partner and
have to register their self assessment to HRMC and have to approve their tax payment policy
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with the government. Partnership type of business is very beneficial because there is never lack
of availability of funds, both partners contribute some investment or capital in the company and
distribute profit equally or according to their contribution of capital in the business organization.
Company: company is one of the most heard and most common word in business world, a
company is form of legal entity which deal fairly in the country. There are certain type of
company such as limited company, limited liability company, private limited company or
corporation company. An sole trader or partners can chose which type of company they want to
adopt and operate further business process. In the UK, most common type of company is limited
company is formed by shareholder, every shareholder of company bring some capital investment
and share profit according to investment. Some private limited company is so successful that
they tend to rule over other countries as well, these type of multinational private company held
responsible for generating surplus profit.
Critically distinguishing between two forms of share capital and two form of long term debt:
Share capital:
Share capital Common stock Preferred stock
Forms Common stock is one of the
most used share capital in
corporation type of business
organization, holders of this
stock have superior power as
they elect board of directs for
the company and demand high
rate of return from these
investment process (Boller
and Morton, 2020). Common
stock show ownership in an
corporation, holders have
certain right such as after
company’s wound up,
common stock holder receive
whatever left after paying to
Preferred share are those share
paid by the company to
preferred shareholder before
any other shareholder of the
company. This type of holder
have certain right such as they
can redeem share any time and
if company become bankrupt
then they have to pay
preferred shareholder first
then other shareholder of the
company (Brabenec, Poborsky
and Saßmannshausen, 2020).
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shareholder, creditor and
stockholder of the company.
Risk Many investor try to avoid
common stock because this is
one of the most riskiest type of
share capital because if an
company become bankrupt
then all remaining creditors
will be paid first and common
stock holder will be paid last,
if nothing left behind, then
common stock holder have to
bear loss.
Preferred share is sensitive
share that keep changing its
interest rate, sometimes price
fall lowest resulting in heavy
loss to preferred share holders.
It is very clear that preferred
share are less risky than
common stock but this is more
risky than bonds, as bonds
have less risk as compared to
common stock and preferred
stock.
Long term debt:
Long term debt Mortgage loan Bonds
Forms Mortgage is long term debt for
person who avail mortgage
loan as this is one of the most
riskiest and problematic
because in mortgage loan,
lender only provide loan on
behalf of any collateral
(Ahnert, 2018). Debtor have to
keep their immovable asset
such as house, property or any
other assets as collateral
against loan amount, this is
more riskier than bonds.
Bonds is statement that
highlight investment mad by
an lender to borrower, this
bond is an agreement between
borrower and lender which
shows details of loan amount
and its payment process. Bond
owners are debtholder who
have to repay loan amount in
some period of time, bonds
include end date, interest rate
and the repayment process.
Risk Every loan have risk, this arise
due to incapability of debtor, it
Bonds is safe long term loan
but this also have certain risk
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is very clear that mortgage
loans are way more riskier
than any other long term loan
because there is high risk of
loss of intellectual property.
associated, these are; risk of
credit, interest rate risk and
market risk. Bond usually
carry one type of risk which
keep bond more complicated.
CONCLUSION
This report has discussed type of business organization and its importance. Later this
report has discussed three type of business, these are; sole trader, partnership and company. Later
this report has discussed critical distinguish between two forms of share capital and two forms of
long term debt.
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REFERENCES
Books and journals
Ahnert, T., 2018. Covered bonds as a Source of Funding for banks’ mortgage
portfolios. Financial System, p.37.
Boller, L. and Morton, F.S., 2020. Testing the theory of common stock ownership (No. w27515).
National Bureau of Economic Research.
Brabenec, T., Poborsky, F. and Saßmannshausen, S.P., 2020. The Difference Between Preferred
& Common Stocks in Europe from the Market Perspective. Journal of
Competitiveness, 12(3), p.64.
Dungan, A., 2017. Sole Proprietorship Returns, Tax Year 2015. Statistics of Income. SOI
Bulletin, 37(2), pp.2-28.
Frydlinger, D., Hart, O. and Vitasek, K., 2019. A new approach to contracts: how to build better
long-term strategic partnerships. Harvard Business Review, 97(5), pp.116-126.
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