A Report on Business Enterprises, Capital, and Long-Term Debt

This report provides an overview of different types of business enterprises, including sole traders, partnerships, and companies, explaining their existence based on factors like legal protection, ease of formation, and access to resources. It distinguishes between equity share capital and preference share capital, highlighting differences in dividend rights, voting rights, and redemption. Furthermore, the report differentiates between bank loans and debentures as forms of long-term debt, focusing on aspects such as lending partners, collateral requirements, and transferability. The conclusion summarizes the advantages and disadvantages of each business form and capital source, emphasizing the varying liabilities and convertibility options associated with different financial instruments.

Business Account

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
a) Explaining different types of business enterprise & why they exist.......................................3
b) Distinguishing between two forms of capital and two forms of long term debt....................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................7

INTRODUCTION
New entrepreneurs faces difficulty while deciding the type of business they should start
and register with. It is important to evaluate factors affecting businesses and then take final
decisions. The present report will discuss the reasons behind existence of different forms of
business. Further, it will distinguish between two forms of share capital (equity shares and
preferences shares) and long term debt (bank loans and debentures).
TASK
a) Explaining different types of business enterprise & why they exist
Sole Traders
A sole proprietorship is like a company which is unincorporated and owner is one single
person. Though, it is the simplest form of business, but it offers minimum legal and financial
protection to the owner. However, formation of sole trader is a simple and easy task which does
not involve many legal formalities. Further, business operations are done with flexibility where
trader can make his own decisions without any interference and can easily adapt to changing
working environment (Dungan, 2017). A sole proprietorship business also exist because owner
has the power to effectively control the business activities.
Proprietor deals with many persons single handedly like suppliers, customers,
wholesalers, etc. and can control them effectively. Moreover, all activities are done under the
supervision of trader, so he can easily control costs and expenses which leads to economies of
operations. Sole proprietorship business is also good enough to carry on because the owner
handle operations which also lad to business secrecy of technical know-how, effective
production process, the cheapest source of raw materials, etc.
Popular sole traders include freelancers like designers, photographers, selfemployed-
people like builders, plumbers, etc.
Partnership Business
This form of business involves two or more people who distribute all profit and losses in
proportionate manner. A partnership business exist because it is inexpensive and easy to
establish with less reporting requirements. It should be register if total turnover is more than
$75000. This type of business has its own benefits due to which it exists like it decreases burden
of managing all tasks on person and provides access to additional resources and funds. Further,

different partners have their own connections and social presence which increases brand
awareness and assist in reaching huge audience (Saputra and et.al., 2021). Another reason behind
the existence of partnership business is that each partner is skilled and talented enough to provide
innovative ideas for business and increase profitability levels. Each partner can clearly identify
any threats or opportunities coming in the way and take necessary actions to further enhance the
performance and position of business. For example, NotOnTheHighStreet.com founded by Holly
Tucker and Sophie Cornish is growing partnership business in UK.
Company
The major reason behind existence of company is to take excess funds or money from
investors, creditors, shareholders in order to generate income and profits on investment. The
reason why company business exist is that corporate bodies provide a structure which allow
protecting liability of owners. Shareholders are not allowed to risk or losing personal assets due
to company's debt (Karpenko and et.al., 2019.). Limited companies also have benefit of flexible
taxation which is not in partnership business. Company can easily have access to debt and equity
market and can easily sell share. Company business operate on bigger level as compared to sole
proprietor and partnership and have to generate reports quarterly and annually which will
published so that public can access to relevant information. For example, Amcor Plc,
AstraZeneca Plc are all public listed company.
b) Distinguishing between two forms of capital and two forms of long term debt
The two major forms of capital are equity share capital and preference share capital, the
differences of which are as follows:
Basis Equity Share capital Preference share capital
Meaning It shows extent of ownership in the
company.
These have preferential rights at the
time of dividend and capital payment.
Dividend pay Here, shareholders get dividend
once all liabilities are settled off
(Anginer, Demirgüç-Kunt and
Mare, 2018).
Preference shareholders are given
priority over equity ones at the time of
dividend distribution.
Dividend rate The rate keeps on fluctuating
according to the income of
Fixed rate of dividend is declared by

company. management which does not fluctuate.
Voting rights These types of shares have access
to voting power.
No voting power is given to
preferential shares.
Role in
management
Equity hares are given right to
participate in management of
company.
Management rights are not extended to
these types of share.
Redemption of
shares
Equity share cannot be redeemed
or converted.
Preference shares are redeemable
shares which cannot be converted
Capitalization Over-capitalisation chances are
very high in case of equity shares
(Difference between Equity and
Preference Shares, 2021).
On the other hand, there are very
fewer chances of over-capitalisation.
The two major sources of long-term debt are bank loans and debentures which are
generally used by company for raising long term finance. The differences between two are
discussed below:
Basis Loans Debentures
Lending partner Financial institutions and banks
are the lending partner to
company.
Here, public lend their excess money
to company with a promise of fixed
interest rate.
Collateral Lending institutes ask for
collateral for loans (Konraht,
Consoni and Wagner da Fonseca,
2020).
No physical asset or collateral is
required from business. Companies
can directly issue debentures without
any formalities.
Transfer facility Bank loans cannot be transferred
to another person or entity and
complete payment of principal and
interest amount is to be paid by
On the other hand, debentures re easily
transferable to another person.

company only.
Purpose Loans are taken from banks to
meet the capital expenditure of
business organization.
On contrary, debentures are issued to
finance mid-term working capital
requirements of company
CONCLUSION
From the above report, it can be concluded that different forma of business exist with
positive and negative aspect. It can also be said that sole proprietor has to deal with all liabilities
whereas in partnership liability distributed among partners. Further, report summarizes the fact
that two major sources of capital i.e. equity and preference have its own benefits and drawbacks.
Preference shares are can be converted into equity ones whereas equity shares are non-
convertible. Lastly, it can be articulated that the bank loan requires collateral, on the other hand,
there is no need of it in debentures.

REFERENCES
Books and Journals
Dungan, A., 2017. Sole Proprietorship Returns, Tax Year 2015. Statistics of Income. SOI
Bulletin. 37(2). pp.2-28.
Saputra, A. and et.al., 2021. Human Capital Plan for Business Startups" Jamu Partnership" in
Indonesia. International Journal of Research and Review. 8(7). pp.370-376.
Karpenko, L. and et.al., 2019. Formation of the system of fair business practice of the company
under conditions of corporate responsibility. Academy of Strategic Management Journal.
18(2). pp.1-8.
Anginer, D., Demirgüç-Kunt, A. and Mare, D. S., 2018. Bank capital, institutional environment
and systemic stability. Journal of Financial Stability. 37. pp.97-106.
Konraht, J. M., Consoni, S. and Wagner da Fonseca, M., 2020. The relation between the
property structure and the leveraged debt cost via debenture issues in Brazil. Revista de
Educação e Pesquisa em Contabilidade. 14(2).
Online
Difference between Equity and Preference Shares. 2021. [Online]. Available through:
<https://groww.in/p/difference-between-equity-and-preference-shares/#:~:text=Equity
%20shares%20represent%20the%20extent,receiving%20dividend%20or%20repaying
%20capital.&text=Shareholders%20receive%20dividends%20after%20all%20liabilities
%20have%20been%20paid%20off.&text=Preferential%20shares%20do%20not%20have
%20voting%20rights.>
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