Accounting for Business: Types of Enterprises, Share Capital & Debt

This report provides an overview of business accounting, focusing on different types of business enterprises, including sole traders, partnership firms, and companies (both public and private limited). It details the characteristics of each enterprise type, highlighting their legal structures, liabilities, and management. The report further differentiates between share capital and long-term debt in public limited companies, explaining concepts like subscribed share capital, authorized share capital, bonds, mortgages, and term loans. It also discusses how companies use debt instruments to raise capital and the financial implications of creating debt for business operations. The report concludes that choosing the right type of enterprise depends on the business's purpose and needs, while managing debt requires careful consideration of financial risk and potential returns. Desklib offers a range of study tools and resources for students.

Accounting for Business

TABLE OF CONTENTS
TABLE OF CONTENTS..............................................................................................................2
INTRODUCTION...........................................................................................................................3
1.Different types of business enterprise......................................................................................3
2. Difference between two forms share capital and long-term debt public limited companies.. 4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................7

INTRODUCTION
Business accounting is the systematic process in which the company perform activities
like recording of financial information. The case study will describe about accounting and types
of business enterprise. financial accounting is the reports of finance which provide detailed
information about company's performance and its market position.
1.Different types of business enterprise.
There are various types of business enterprise, each company has its own rules, policies
and legal structure. Before deciding to create business or establish a company, entrepreneurs and
owner should carefully consider which type of structure is suitable for them.
Sole traders
A sole proprietorship is a company that is run by single person only. This is the simplest
type of business which offers the least amount of financial protection for the entrepreneurs. They
do not create a separate legal identity thus; the company's owner shares the same identification.
So, the company's owner is liable for any and all debts and liabilities incurred by the
organization. If the entrepreneur wants to retain and make profits with full control of the
company then they must choose this option effectively. According to experts, it is noted that it is
easy and low expensive process. Moreover, the income is considered the personal income of the
owner, so there are also tax benefits for them.
Partnership firm
In this type of company, two or more member can come together in order to form
business. The company is required to draft a document called partnership deed; it should be
signed by all the partners which also includes detailed information about them. This document
must clearly mention the names of firm, partners identity and profit-sharing ratio among them.
Also, the deed must clearly specify duties, policies, obligation and rights of each and every
partner. The documents must mention salaries and other allowances. All the partners are liable
for any liabilities and gains incurred by firm. In limited partnership, the company must have at
least one general partner. On the other hand, limited liability partnership firm is the company
where partners are responsible for the business operations equally.
Company

Company is separated legal entity which provides corporate tax rates. The risk incurred
by any member by investing personal capital is restricted to the amount of investment. In this
case, the lenders of the company cannot force the partners to pay liabilities and debts. Two types
of company are public limited company and private limited company. The management of the
company is managed by directors. A private limited company can have 50 members maximum
and two members minimum. On the other hand, minimum seven members can form the company
There is no limit on the number of people of public limited company. It is mandatory to file the
company with the registrar of companies (Forms of business organisation, 2021). The company
have to file two main documents: the memorandum of association and articles of association.
The documents must specify the name of the business and its activities, its address, details about
members. The second document must specify the policies and norms of the company, the duties,
rights and debts of the directors.
2. Difference between two forms share capital and long-term debt public limited companies.
The share capital is the fund which is raised by the company through issuing shares to the
public (Al-Shabatat, 2021).
Subscribed share capital
 A share capital which is the part of
issued capital which has been taken off
by the public who has invested their
money.
 It is not important that the issued
capital is fully subscribed to the public
(Tehami, 2021). This share capital is the
sum total of treasury shares.
 Example- if any company offers 16000
shares of Rs 100 each and the public
applies on that for 6000 shares, then it
would be 16 lakhs which is called
issued capital and Rs 6 lakhs would be
subscribed capital.
Authorized share capital
 On the other hand, when the firm
accepts the sum total capital from its
investors such as public or others then
by issuing shares which is officially
called authorized share capital of the
company.
 Tesco is the public limited company
which accepts the capital invested by its
investors.
 Authorized capital is also known as
nominal capital because it is registered
as investment done by investors.
Long term debt

In order to raise share capital a company utilizes different types of debt instruments
(Pronko, Kolesnik and Samborska, 2021). Long term debt is the amount or money of outstanding
debt a company holds which has maturity period of 12 months or more than one year.
Bonds
 Bonds in term of long-term finance
have maturities of 10 to 30 years,
which is more as compared to term
loans.
 In order to minimize the cost of capital
raise, public limited company choose
its capital structure seeking the overall
combination of debt and equity.
 Bonds are publicly tradable securities
which is issued by a firm.
 Example of bonds- zero-coupon,
convertible etc.
Mortgage and term loans
 The maturity period of term loans is 5
to 12 years and the characteristics of
term loans: they are unsecured and
secured.
 There are different conditions that
favour the proper utilization of long-
term debts which includes profitability.
 Term loans is secured by a lien on the
fixed assets such as equipment’s or
other accessories (Musweu, 2021).
Mortgages are the long-term loans that
are backed by real estate or properties
like buildings and land.
CONCLUSION
To conclude, by analysing the report it is concluded that when a firm take any kind of
long-term loans or create debt for the business. The company is creating financial leverage,
which may increase expected return on the firm’s equity and increase financial risk for the
business operations. Finally, the report has concluded that if any firm wants to choose type of
enterprise, then they need to observe the purpose and needs of business operations.

REFERENCES
Books and Journals
Pronko, L., Kolesnik, T. and Samborska, O., 2021. Essence and Concept of Capitalization of Enterprises
its Types and Methods of Evaluation. European Journal of Sustainable Development. 10(1).
pp.551-551.
Chaiyawong, N., Mathuramaytha, C. and Tresirichod, T., 2021. FACTORS THAT AFECTING
CUSTOMERS LOYALTY OF KRUNGTHAI BANK PUBLIC COMPANY LIMITED,
WATTHANANAKORN BRANCH. RMUTT Global Business Accounting and Finance
Review. 5(1).
Tehami, I., 2021. The Nature of Partnership in Bangladesh With Special Reference To The Case Of Cox
vs Hickman (1860) 8 HLC 268. Available at SSRN 3807789.
Al-Shabatat, M. A. Z., 2021. ADOPTING A LIMITED LIABILITY PARTNERSHIP FOR THE LEGAL
PROFESSION IN THE PARTNERSHIP LAW: A CRITICAL REVIEW FROM INDONESIA'S
PERSPECTIVE. Journal of Legal, Ethical and Regulatory Issues. 24(2). pp.1-17.
Musweu, F. K., 2021. The Importance of including Business Entities in the Introduction of any Basic
Accounting Programme. International Journal of Business Management Insight &
Transformations [ISSN: 2581-4176 (online)]. 5(1).
UWAMARIYA, J. and Njenga, G., 2021. CUSTOMER RETENTION STRATEGIES AND PERFORMANCE
OF COMMERCIAL BANKS IN RWANDA: A CASE STUDY OF EQUITY BANK RWANDA
PUBLIC LIMITED COMPANY (PLC). Journal of Advance Research in Business Management
and Accounting (ISSN: 2456-3544). 7(10). pp.75-112.
Online
Forms of business organisation. 2021.[Online]. Available through: <
https://www.mosourcelink.com/guides/start-a-business/register-your-business/forms-of-
business-organization>