Types of business enterprise- Accounting for Business

This report covers the three main types of business enterprises which can be used by the entrepreneurs to start a business. The report further talks about how these business enterprises can be financed and can work efficiently with the funds provided. Learn about the three main types of business enterprises and how they can be financed and work efficiently with the funds provided. Also, understand the concept of long-term financing of listed companies like share capital and debt.

Types of Business
Enterprise

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
Why do you think that three different types of business enterprise (sole traders, partnership
and companies) exist? Use examples to illustrate your answer..................................................3
TASK 2 ...........................................................................................................................................4
Critically distinguish between two forms share capital and two forms of long-term debt in the
context of long-term sources of finance of listed companies......................................................4
CONCLUSION ...............................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
A business enterprise is a type of entity that is involved in providing the consumers with goods
and services with the main goal of earning a profit. It is applied to every other firm who deals in
commodities or services to be sold and from which they earn a profit (Cai, and et. al., 2018).
This report covers the three main types of business enterprises which can be used by the
entrepreneurs to start a business. The report further talks about how these business enterprises
can be financed and can work efficiently with the funds provided.
TASK 1
Why do you think that three different types of business enterprise (sole traders, partnership and
companies) exist? Use examples to illustrate your answer.
Business refers to an organisation that is created specifically to deal in the selling of goods and
services in the view of earning profit. These are done on commercial basis to the customers.
Most of the businesses exist to earn a return and these are considered as the profit to the business
owners. Profit is the reward of risk taken, which means that profit is actually a kind of reward
that is earned by the business owner in taking the risk to invest in the business and managing its
day-to-day activities. But not every business owner manages the daily activities of the business.
Owners can have varied roles in the functioning of the business (Hechanova and Villaluz, 2019).
Here comes a distinction in the functions of different business. As the owners have diversified
roles, this makes the basis for different business enterprises. There are three types of business
enterprises and these will be discussed further.
Sole Proprietorship is a kind of business which is owned by one individual only. This is the
simplest kind of business enterprise as it is owned and governed by a single individual. All the
decision-making power regarding the business lies in the hand of this single person called sole
proprietor. This kind of business has tax benefits and the owner has unlimited liability. Example
of sole proprietorship is, beauty parlour, general store, etc. Characteristic of this are: 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 another kind of business enterprise in which the ownership power is split among
different people who in business sense are called partners. These partners come together to run a
business and they share all the earnings either equally or in a predetermined ratio. These partners
invests in the business together and manages the daily activities of the business (Tastulekov,
Shalbolova and Satova, 2019). This business can be divided into two subgroups- general
partnership and limited partnership. Example of this is GoPro & Red Bull, Uber & spotify.
Characteristic of this are: Every partner have a risk of unlimited liability for all the debts of the
firm. No partner have 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 shares to sell to the
general public. The owners in this business are the general public who buys or holds the shares
of the company. In order to start a public limited liability business there are some particular
obligations that a PLC needs to meet (Bourveau and et. al., 2021). Example of this is J Sainsbury
Plc, AstraZeneca Plc. Characteristic of this are: Company has a separate legal entity from
identity of its shareholder or partners. Shareholder can easily transfer their shares to the public
whenever they want. Shareholders liability is limited in according to the shares owned by them.
TASK 2
Critically distinguish between two forms share capital and two forms of long-term debt in the
context of long-term sources of finance of listed companies.
Long-term finance refers to those financial instruments which have their maturity exceeding one
year. The long term financial sources of listed companies are of two types: equity/ share capital
and debt. Share capital are those funds of the company that it raises by issuing the stock in the
stock exchange market. Meanwhile debt is that part of the finance that the business owes to
different creditors like bank, financial institutions. Two forms of Share capital are discussed
hereunder:
Preferred share capital is the amount that is raised by issuing preference shares. These shares
have the right of receiving a set rate of dividend and also receive the paid up capital before
equity shareholders. The advantage of this in context of listed company is that the lack of voting

rights of preference shareholders helps a company be in strength position. Its disadvantage is that
the preference shareholders enjoy the preferential rights which is costly for the company.
Equity share capital is the amount raised by issuing equity shares. Such shares does not hold
the right to receive dividend before preference share but they enjoy the voting rights of the
business. Advantage of this is that, these shares does not create any obligation for fixed rate of
dividend (Dellheim, 2018). Disadvantage of the same is that company can not take advantage of
trading on equity.
Two forms of debt are discussed hereunder:
Bonds are publicly traded securities which are issued by the company having maturity of more
than a year. Advantage of this type of finance is that these are easily liquid and company can sell
these in large quantity. Disadvantage of this is that these become highly volatile and the prices of
this fluctuate quickly.
Debentures are loans that does not have any mortgage asset. The debenture holders are creditors
of the company (Qian, 2020). Advantage of this is that these permits the company to raise long
term funds without diluting the control in the company. Disadvantage of the same is that these
create a permanent burden on the business until they are paid off in full.
CONCLUSION
From the above report it is concluded that there are many different kinds of business enterprises
like sole trader ship , partnership, public limited company. The report highlights why these
different enterprises exists. The report further discusses the concept of long-term financing of the
listed companies like share capital and debt and critically analyse why these are beneficial and
also bad for the company.

REFERENCES
Books and Journals
Bourveau, T., and et. al., 2021. Public Company Auditing Around the Securities Exchange
Act. Available at SSRN 3837593.
Cai, D., and et. al., 2018. The relationship between credit constraints and household
entrepreneurship in China. International Review of Economics & Finance. 58. pp.246-
258.
Dellheim, J., 2018. ‘Joint-Stock Company’and ‘Share Capital’as Economic Categories of
Critical Political Economy. In The Unfinished System of Karl Marx (pp. 265-298).
Palgrave Macmillan, Cham.
Hechanova, M. and Villaluz, V.C., 2019. Ownership and leadership in building an innovation
culture.
Qian, H., 2020. The impact of debt on companies’ profitability in China (Doctoral dissertation).
Tastulekov, S.B., Shalbolova, U.Z. and Satova, R.K., 2019. Public-private partnership formation
in Kazakhstan. Academy of Strategic Management Journal. 18(5). pp.1-8.