Comparative Analysis: Share Capital and Long-Term Debt in Businesses

This report provides a comprehensive overview of accounting practices for different types of business enterprises, including sole proprietorships, partnerships, and companies. It details the characteristics, advantages, and disadvantages of each business structure, highlighting their roles in economic development and employment. The report further differentiates between share capital, raised through issuing shares to the public, and long-term debt, obtained from financial institutions. It contrasts common and preferred stock, as well as bonds and bank loans, emphasizing differences in ownership, dividend payments, voting rights, and priority in the event of liquidation. The analysis underscores the importance of both equity and debt financing in meeting a company's financial requirements and supporting long-term growth. The report concludes that the existence of business enterprises is essential for providing employment and contributing to economic development. Desklib offers a variety of solved assignments and past papers for students.

Accounting for Business Types
of business enterprise

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
CONCLUSION................................................................................................................................1
REFERENCE...................................................................................................................................2

INTRODUCTION
Accounting for business means preparing, recording and summarizing all business transactions.
Accounting is the important part of the business in order to record daily as well as special
transactions. This report will discuss about the existence of sole trader, partnerships and
company. Further it will discuss about the difference between forms of share capital and long
term debts for the business.
MAIN BODY
Three different types of businesses enterprise exist
Mainly there are three various kinds of business enterprise which are sole trader, company and
partnerships (Teece and Linden, 2017). Sole trader or sole proprietor means single owner of the
business which have complete control over the business. They are responsible for everything in
the business whether it is financial related decisions or hiring employees etc. sole trader have
unlimited liability which means that they have sell his or her personal property for paying back
to their creditors. It is one of the easiest form of business and it is often easy to start and also
easy to exit. Example of sole trader are social media consultants, freelancers, copywriters etc.
Next is partnerships which means the formal agreement which is made between two of more
than two people which come into contract to start the business (Defourny and Nyssens, 2017).
Under this enterprise partners share the profits on the agreed ratio. Partnerships are of many
types which are sleeping partners, working partners, nominal partner, general partnerships etc.
example red bull and go pro, Levis and Pinterest etc.
third one is company which is also called as the artificial person. Company gets registered with
their own name and have many owners in the form of shareholders. Company have team of
directors which takes important decisions. Company raises funds by providing shares to the
shareholders and in return they pay dividend to their shareholders out of the company's profit.
Company is the large enterprise and the owner of the company has limited liability (Lee, 2019).
When it will get dissolved than payment will be done to the debtors and than to the shareholders.
Example Tesco, marks and Spenser etc.
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these three type of businesses exist because they provide employment to many people. It
also contribute in the economic development of the country. Often government provide subsidy
or other support to the small businesses so that they can grow. In order to increase the economic
development of the country it is required to have more and more businesses. Due to lack of
companies in the country often people migrate to another country and because of that talented
and knowledgable citizen of the country moves to other country. So this is also the reason that
government support businesses because they provide jobs to many people.
Differentiate between share capital and long term debt
Share capital is the capital which is raised by the company from the public by issuing shares at
stock exchange. Company invite public to purchaser shares from them. Public gives funds to the
company and in return company provides them dividend.
long-term debt means the debt which have more than 12 months of maturity period (Long Term
Debt., 2020). Company often taken long term debt so that they can satisfy the long term funds
requirements of them. Banks and other financial institutions provide long term debt to the
company. Debts are the financial obligations of the business which they have to pay anyhow.
Company require time to pay their long term liabilities because they generate cash by selling
their inventory. The two types of share capital are common stock and preferred stock.
The major difference between share capital and long term debt is that when company
issue shares then they have to provide ownership to the shareholders but in the case of long term
debts there is no need to provide ownership to the company (Farah and Amin, 2021).
Shareholders can be called as company's owner and institution which provide long tern debt are
the creditors of the company. In case of share capital company has to pay dividend to the
shareholders and in case of long term debt it is required to pay interest to the financial
institution. Company will pay dividend to the shareholders only if company had earned profits
but in case of long term debt, interest is paid by the organisation in any situation whether the
firm is incurring profit or loss interest is compulsory to pay. Shareholders have the voting rights
in the company while the institution which has provided funds to the company have no voting
rights. two types of long term debts are bonds and bank loans.
Shareholders have the power to interfere in company's decision-making while in case of long
term debt it is not allowed (Shahab, Mohammad Zaheri and Asadi, 2017). If company will wind
up their business operations then money has to be paid to the financial institutions or investors
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which has given long term debt but money is to be given to the shareholders at the end after
company has done all the payments.
CONCLUSION
Through this report it can be concluded that it is required to exist business enterprise so that
people can get employment and also it contribute in the economic development of the country.
This report has evaluated sole trader, partnerships and company in detail. Share capital are the
owner of the business while long term debt is the fund which is raised by the company from
financial institutions. Company also issue bonds for fulfilling its long term finance requirements.
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REFERENCE
Books and Journals
Defourny, J. and Nyssens, M., 2017. Mapping social enterprise models: some evidence from the
“ICSEM” project. Social Enterprise Journal.
Farah, I. and Amin, C., 2021. The Effect of Debt To Asset Ratio, Long Term Debt To Equity
Ratio and Time Interest Earned Ratio on Profitability. BINA BANGSA
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT. 1(1). pp.68-
78.
Lee, I., 2019. The Internet of Things for enterprises: An ecosystem, architecture, and IoT service
business model. Internet of Things, 7, p.100078.
Shahab, A., Mohammad Zaheri, M. and Asadi, N., 2017. Impact of Long-term Debt on
Overinvestment Problem of Agency. Advances in Mathematical Finance and
Applications. 2(4). pp.93-105.
Teece, D.J. and Linden, G., 2017. Business models, value capture, and the digital
enterprise. Journal of organization design. 6(1). pp.1-14.
online
Long Term Debt., 2020. [Online]. Available through:
<https://corporatefinanceinstitute.com/resources/knowledge/finance/long-term-debt-
ltd/>
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