External Long Term Finance for Unincorporated and Incorporated Businesses

Accounting for
business

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Unincorporated businesses (sole traders and partnerships)........................................................3
Incorporated businesses (private and public limited companies)...............................................4
CONCLUSION ...............................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Accounting for business explains how the transactions are being recorded and how the
financial information is understood and organised by businesses. Accounting is about getting a
clear view and understanding of financial position of business. It tells whether the business is
making profit or not, information about the cash flow, the current position of business' assets and
liabilities and about the parts of business which are making more money and profit
(Blommestein). This report analyses the external long term finance available for unincorporated
and incorporated business entities. The report further elaborates the various external long term
sources and similarities and dissimilarities among them with regards to partnership, sole traders,
public and private companies.
MAIN BODY
External sources of funds are those type of sources by which finance is raised from
outside the entity. For instance, reserves is an internal finance source, whereas the loans from
bank is an external source of finance. On the time period length basis, the sources are divided
into long term and short term sources of finance. Long term sources of finance includes equity
shares, debentures, term loans, venture capital, etc. Short term sources includes bank overdraft,
working capital loans, trade credit, debt factoring, etc.
Incorporated and unincorporated business entities: When a company has an entity separate
from its owner and has natural rights to it, it is known as an incorporated business entity. When
the owner of the company and the entity are the same and all consequences are the personal
responsibility of the owner, this type of entity is known as an unincorporated entity. This type of
companies are typically single owners or partnerships. The fundamental difference between an
incorporated and unincorporated company is how the owner takes over the company's activities
(El-Abbasy and Zayed, 2020).
Unincorporated businesses (sole traders and partnerships)
Unincorporated entities such as sole proprietorships and partnerships, cannot raise capital
by selling shares. They also cannot sell debt securities. They can borrow money from family and
friends, or use the owner's profits and savings. Partners must raise additional capital. Lenders are