LSC UoS BA Business: Accounting for Business Enterprise Types

This report provides an overview of different types of business enterprises, including sole traders, partnerships, and companies, and explains the reasons for their existence. It highlights the key differences between major forms of share capital (preference and equity) and long-term debts (term loans and bonds/debentures). The report concludes that companies issue different kinds of share capital and take on long-term debt to operate their business, while sole traders operate independently, and partnerships leverage shared skills and knowledge. The analysis also references relevant books and journals to support its findings.

ACCOUNTING FOR
BUSINESS

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Existence of three different type of enterprises...........................................................................3
Difference between major forms of share capital and long term debts.......................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................1

INTRODUCTION
Sole trader, partnership and companies are the major three form of business organization.
However, they vary in many aspects but still they exist in the corporate world. The running of
business requires a high need of funds which may be raised from various sources including issue
of shares or the debts. This report discusses the existence of major form of business along with a
distinguishment of types of share capital and long terms debts.
MAIN BODY
Existence of three different type of enterprises
Sole traders:
It refers to a type of business under which there is only one individual or owner. This
means it is a form of business which is own and run by a single individual and there is no legal
distinction in respect to business entity and owner (Cribb, Miller and Pope, 2019).
The reason because of which it still exists are:
 This is the simplest form of business.
 Formation of this business is easy and does not require registration.
 There is limited government intervention in case of sole trader business. Also there is no
specific law which govern this business.
 There is no fear of profit or loss because all the profit, loss as well as decision making is
done by owner.
For example: J.C. Penney
Partnership:
It can be defined as a business under which 2 or more than 2 person agree to start a
business. The sharing of profit as well as loss is made between the partners. This business can be
formulating either in an informal manner including oral conversation or it can also be form with
written agreement which is called partnership deed (Wells, 2021). All the terms and conditions,
rights as well as duties and various other detail of the business is written on the deed. Here all the
losses are personally share by the partners. Also every partner makes payment of tax of its share
of capital. This business is governed by the Partnership Act 1890.

The reason for the existence of this form of business is because under this business along
with sharing of profit and losses, the sharing of skills, experience as well as knowledge is also
involved. This is also counted as major business expansion growth strategy under which with the
mode of partnership form of business the expansion can be made possible in an easy mode. Also
due to the involvement of sharing of loss as well as profit this form of business still exists.
For example: Pret A Manger
Company:
It can be defied as a legal entity which is formed by a group of individual in respect to
engagement and operation of the business. The companies can either be public or private. The
main objective of the formation of the company is to make profit with the performance of
business operations (Tahir, 2018). A company is treated as separate legal entity which is
different from the owners. It has its own legal existence. It can make purchase as well as sell its
shares. It is governed by the Companies Act 2006. The payment of tax is also made under the
name of the company as corporate tax.
As companies are usually formed with an aim to generate profit with the activities of the
business which itself become a reason of its existence. Likewise, as company make a major
contribution towards the economy of a country in terms of income generation as well as
employing the individual with respect to job. Likewise, they make the availability of various
products and services among the economy which make it a reason of existence.
For example: Tesco
Difference between major forms of share capital and long term debts
Share capital:
It can be defied as funds which will be raised by the company with regard to making a
sale of its share to investors. Through this mode the funds will be raised by the company. There
are mainly two major type of share capital which are as follows:
Preferred stock or Preference share capital Common stock or equity share capital
When the capital amount is raised with the
issue of preferential right then it is termed as
preference share capital. Here preference
shares are issued.
Under this common stock or shares will be
issued by the company among the public. Here
equity shares are issued.

They have preferential right with respect to
divided sharing.
They do not have such preferential right
although they receive dividend after the
payment of all expenses and preference
dividend.
They have preferential right in respect to paid
up share capital before the common
shareholders (Rustagi, 2021).
They do not have such right.
They do not have any voting right with respect
to the company.
They have voting right with regard to the
company
The rate of dividend rate in case of preference
share is not changeable and they will be paid
dividend at any cost.
Payment of dividend is not compulsory. They
do not have any fixed rate of dividend.
Long term debt:
It can be defined as those debts which is usually taken for long period of time i.e. more than
one year. This is one of the major source of finance for the company under which debt will be
raised from the market for a longer period of time.
Term loan Bonds or debentures
These can be secured as well as unsecured
loans. It is generally issued by bank at variable
rate of interest.
These are issued by the company in terms of
debentures. Under this the interest is payable
on annual basis.
The rate of interest is usually high and in case
of unsecured loan the rate is much higher.
The rate of interest is low in comparison of
loans.
These cannot be easily traded in market
because it refers to the agreement between two
parties under which one person borrow money
from another (Ma, Stice and Williams, 2019).
They are highly tradable in the market i.e. the
person hold the bonds can make sale in market
without waiting for maturity.
For example: variable bank loan For example: 10-year US Treasury Bill

CONCLUSION
From the above report it is concluded that in order to operate the business operations the
companies issue different kind of share capital along with take long term debt with the mode of
bonds or the loan. In the same way, the report also summarizes the various form of business
organization along with their reason of existence i.e. operation of business by sole trader, support
to economy by company as well as operation of business by share skill and knowledge in
partnership.

REFERENCES
Books and journals
Cribb, J., Miller, H. and Pope, T., 2019. Who are business owners and what are they doing? (No.
R158). IFS Report.
Ma, Z., Stice, D. and Williams, C., 2019. The effect of bank monitoring on public bond
terms. Journal of Financial Economics. 133(2). pp.379-396.
Rustagi, R.P., 2021. Investment Analysis & Portfolio Management. Sultan Chand & Sons.
Tahir, M.I.T., 2018. Evaluation of analysis of section31 (1) of the companies act 2006. European
journal of law and political sciences. (3).
Wells, H., 2021. The Personification of the Partnership.
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