Conflicts of Interest among Shareholders and Business Managers

FINANCE

TABLE OF CONTENTS
PART- A..........................................................................................................................................1
QUESTION- 1.................................................................................................................................1
a) Potential losses and the liabilities of the owners in the different forms of businesses............1
b) Advantages and disadvantages of the forms of the business...................................................1
QUESTION- 2 ................................................................................................................................2
ii) Three alternative sources of the finance..................................................................................2
PART- B..........................................................................................................................................3
QUESTION- 1.................................................................................................................................3
a) Factoring of the accounts receivables......................................................................................3
b) Reasons for the repayment of the long term borrowing earlier than the repayment date........4
QUESTION- 2.................................................................................................................................4
Conflicts of interest among shareholders and the business managers and how they could be
dealt..............................................................................................................................................4
REFERENCES................................................................................................................................6

PART- A
QUESTION- 1
a) Potential losses and the liabilities of the owners in the different forms of businesses
i) If the Tiny Pots is the sole proprietorship business and the Ms Stark is the owner of such
business, and then she is to assume all the liabilities of the business. In the sole proprietorship
form of the business there is the unlimited liability of the owner of the company for all the debts
and obligations that are incurred by the company. So in this case the potential loss of the
investments are equal to the contribution made £60000. The amount of payment that the owner
shall be personally be obliged to make are £90000 which are the outstanding obligations.
ii) If the Tiny Pots is the general partnership and the profit sharing ratio between both the
partners is 50:50, then in that case Ms Stark shall be liable for the 50% of the total amount that is
due in the business. In the contract of partnership it can be assessed that all or any of the partners
are jointly and severally liable for the debts of the company. So the potential loss of the
investments made by Ms Starks shall be £30000 which is 50% of the overall liability (Morales
and et.al., 2021). The total amount that she shall be obliged to pay are £75000 out of which
£30000 is to self.
iii) In case of Tiny Pots being the private limited company the company and its shareholder's are
the different person and so the shareholder's are not liable to pay the debts of the company. As
per the concept of the separate legal entity it can be defined that Ms Stark will not be liable for
the debts of the company. So in this situation the potential loss of the investments shall be
£60000 but the amount that the Ms Stark is obliged to pay shall be nil as the owners are not
liable to meet the debt obligations of the company in case of the company.
b) Advantages and disadvantages of the forms of the business
i) Ability to raise finance- The sole proprietorship is at disadvantage to raise the finance from the
equity sources by offering to the public at large and also in terms of acquiring loans to finance
the operations of the business its credit history shall be verified and the loans shall be extended.
The partnership businesses are moderately favourable in case of the raising or obtaining the
finances for the smooth functioning of the business. The capital can either be contributed by the
various existing partners, through adding the new partner or then by taking the loan from the
bank. The company stays most advantageous in case of ability to raise the finances as it is free to
obtain the capital either through issue of equity shares or from the debt sources.
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