Different Types of Business Enterprises and Long Term Sources of Finance

This report covers the three main types of business enterprises which can be used by the entrepreneurs to start a business. The report also highlights how long term funds can be acquired by the firm from different sources. It also compares equity shares and preference shares with reference to long term sources of finance available for listed companies.

ACCOUNTING FOR
BUSINESS

INTRODUCTION
Business refers to an enterprise that have come into existence to sell goods and services for the
main purpose of profit earning (Abdennadher and et.al., 2021). There are different types of
business enterprises. These enterprises involve in providing the customers with goods and
services with the main goal of earning profits. This report covers the three main types of business
enterprises which can be used by the entrepreneurs to start a business. The report also highlights
how these business enterprises can be financed and can work efficiently with the funds provided.
Why the Different types of business enterprises exist? Explain using examples.
Business refers to an individual entity which ids formed with the help of different regulations but
the main aim of these entities is to serve its customers with the main purpose of earning profits.
These are done on commercial basis to the customers. Most of the organization survive to gain a
return and these are registered as the profit for the business owners. Profit is the reward for risk
taken, which means that profit is in reality a kind of payment that is earned by the business
owner in taking the risk to spend in the business and carrying off its everyday actions. Here
comes a distinction in the functions of different business (Badu and Appiah, 2018). These
business are different in the working, needs and wants. If an owner wants to start a small scale
business with low capital, they might want to go for sole proprietorship. If the entrepreneur
wants to go for a middle scale business with medium level of capital investment, they might
want to go in partnership with different individuals with similar interests. If an owner wants to
go for a long term investment with larger share capital they will invest in big corporations. There
are three types of business enterprises and these will be discussed further:
Sole Proprietorship is a type of business enterprise which is owned by one person only. This is
the simplest kind of business enterprise as it is owned and governed by a single individual known
as sole proprietor. Sole proprietor comes into existence as the owner wants to invest small capital
and manage a small scale of business. All the decision-making knowledge regarding the business
lies in the hand of this single person called sole proprietor. The owner has unlimited liability.
Example of sole proprietorship is, beauty parlour, mobile repair shop etc. In a sole proprietorship
business, liability of the firm can be unlimited and proprietor suffer every loss of the business

even owner's private property is liable for the obligations occurred. As decision makers of the
business is their owners who is in position to maintain all the business affairs and secrecy to
himself.
Partnerships is other type of business enterprise in which the ownership is divided among
various people who in business terms are called partners. These people have the objective of
investing medium level of funds individually. They invest in the enterprise jointly and manages
the daily activities of the business (Chu, Mathieu, and Mbagwu, 2019). This business can be
divided into two subgroups- general partnership and limited partnership. Example of this is
Spotify and Uber, Pottery Barn & Sherwin-Williams. Every partner has a risk of unlimited
liability for all the liabilities of the business. No partner has a right to share its partnership with
other person or include another partner in the company without the consent of the other partners.
Legal Partnership deed is required to avoid later conflicts
Public Limited Company is a type of company which can legally offer its stock to sell to the
general public. The management in the business is responsible to manage the daily activities. In
order to start a public limited liability business there are some particular obligations that a PLC
needs to follow. Example of this is GlaxoSmithKline Plc., EasyJet Plc. Company has a separate
legal entity from individuality of its shareholder or partners. Shareholder can easily transfer their
stock to the public whenever they want. Shareholders liability is limited in according to the
shares owned by them.
Critically compare the two forms of share capital and long term debt with reference to the
long term sources of finance available for listed companies.
Equity share: Equity shareholders possess ownership in a company which makes them feel
superior over other shareholders present in the market. In case of equity shareholder’s dividend
rate can fluctuate according to problems and situations a company is dealing with. There is no
redemption of shares facilitated in case of equity shares (Cristea, 2020). One advantage which
equity shareholder's carry over preference shareholder's is the voting rights provided to them.
They aren't provided with any extra benefit of recovering arrears from the previous year. Equity
shares can be converted in preference shares whereas such opportunities are not available with
preference shareholders. Risk involved in such type of shares is high when compared to
preference shares. They are not given any preferential rights as given in case of preference

shareholders where preference is given in case of distribution of dividend and interest after
setting off losses and liabilities.
Preference share: Preference share can be explained as shares in which conversion is not
possible. Risk prevailing in case of preference shares is relatively less as compared to equity
shares. Preference shareholder are provided with superior rights which gives them preference
over other shareholders at the time of winding up of the company. Preference shareholders are
not provided with any special voting rights such as provided to equity shareholders. They are
given extra advantage of recovering arrears which took place in previous year. Rate of dividend
is fixed in case of equity shares.
Bonds: This is document which is used by the companies to raise funds and a fix amount of
interest is paid to the holder of the security at the maturity date. Companies uses these funds for
the midterm requirements of a firm (Napier, 2019). Market value of these bonds may change
over the period of time. These are relatively beneficial for the organisation from the equity as
they did not have to give share in the profits to holders of these bonds. There are various bonds
that can be used by the organisation to raise funds such as, corporate bonds, municipal bonds,
U.S treasury bonds, etc.
Debentures: It is a long term debt issued by the companies and government to raise funds from
the general public. Company uses these funds for the further investment and expansion activities.
Organisations offers coupons or interests on these securities. These are the obligation for the
organisation as these have to be paid after a specific period of time. Some of the debentures are
as follows, convertible and non-convertible debentures. Convertible debentures provide a bit of
space to organisation as their payments are fixed at the time of maturity. These securities are the
liabilities for the firm which has to be paid over a period of time.
CONCLUSION
From the above mentioned report, it can be concluded that different business enterprises exist for
different motives. The selection of the type of business depends on the requirement of the
individuals and scale on which it is going to be operated. The report also highlights how long
term funds can be acquired by the firm from different sources.

REFERENCES
Books and Journals
Abdennadher, S and et.al., 2021. The effects of blockchain technology on the accounting and
assurance profession in the UAE: an exploratory study. Journal of Financial Reporting
and Accounting.
Badu, B. and Appiah, K.O., 2018. Value relevance of accounting information: an emerging
country perspective. Journal of Accounting & Organizational Change.
Chu, L., Mathieu, R. and Mbagwu, C., 2019. Independent directors, business risk, and the
Informativeness of accounting earnings for debt contracting. Canadian Journal of
Administrative Sciences/Revue Canadienne des Sciences de l'Administration. 36(4).
pp.559-575.
Cristea, L.M., 2020. Emerging IT technologies for accounting and auditing practice. Audit
Financiar.18(4). pp.731-751.
Napier, C.J., 2019. Accounting and the influence of economics at LSE. In The Palgrave
companion to LSE economics (pp. 79-111). Palgrave Macmillan, London.
2019)