Types of Business Enterprise and Forms of Share Capital and Long-term Debt

Accounting for Business

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
a. Describing three different types of business enterprise ..........................................................3
b. Critically distinguishing between two forms share capital and long-term debt.......................4
CONCLUSION ..............................................................................................................................6
REFERENCES ...............................................................................................................................7

INTRODUCTION
Accounting is a process by which business transactions are identified, recorded, analyzed,
interpreted and summarized. This report will highlight the three different types of businesses. It
will also highlight difference between the forms of share capital and long term debt.
a. Describing three different types of business enterprise
Sole traders
Sole proprietorship is a type of business that is not incorporated under law and fully
managed and controlled by an individual referred to as sole trader or sole proprietor. There is not
distinction between the owner and the business entity. Sole trader has unlimited liability that
means the sole trader has full legal responsibility to pay for all the debts of the business. All the
decisions are taken by the sole proprietor (Bennett and et.al., 2019). It is easiest to establish and
discontinue this type of business. There are very few laws to abide by sole proprietorship form of
business. Operating costs are lower because all the tasks related to the functioning of the
business are performed by the one person only. Only traders earning more than £1,000 have to
register themselves with HMRC. These businesses are highly popular among freelancers, sole
owners, self contractors and consultants.
Partnerships
This type of businesses involve two or more people having legal relationship established
by a written (most commonly) or oral agreement between them. Persons involved in this type of
businesses are called partners (Partnership, 2022). These partners agree to share all risks,
expenses, responsibilities and profits/losses. A partner can be both an individual or another
business. The registration of each partner for self assessment with HMRC is must. They must
also complete an annual tax return. Partners manage the business themselves although they can
delegate certain responsibilities to their subordinates or employees. Among all the partners a
partner is nominated who sends HMRC a partnership return. The partners only contributing
capital and not participating in managing the business are known as sleeping partners. There
exists three types of partnerships namely: