A Detailed Report on Business Types and Share Capital vs Debt

This report provides an overview of three main business types: sole proprietorships, partnerships, and companies, highlighting their characteristics and importance in the economy. It details how sole traders are individually owned, partnerships involve agreements between multiple parties, and companies are registered entities formed by groups. The report further contrasts share capital, which represents owned funds raised through stock exchanges, with long-term debt, which constitutes borrowed funds with maturities exceeding 12 months. Key differences are explored, including repayment obligations, cost implications, and collateral requirements. Share capital involves no obligation to repay shareholders unless dividends are declared from profits, while long-term debt necessitates regular interest payments and potential collateral. The report concludes that understanding these distinctions is crucial for businesses seeking funding and for stakeholders assessing financial structures. Desklib provides a platform for students to explore similar solved assignments.

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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Existence of three different types of businesses..........................................................................1
Distinction between share capital and long term debt.................................................................2
CONCLUSION................................................................................................................................3
REFERENCE...................................................................................................................................4

INTRODUCTION
Business accounting ensure smooth functioning of the business as it contains everyday
transactions. This report will discuss existence of different types of enterprise and difference
between share capital and long term debt.
MAIN BODY
Existence of three different types of businesses
Sole trader or proprietorship is the business which is owned by individual. Under such
business the owner have all the power and control over the business (Szilárd, Benedek and
Ionel-Cioca, 2018). Capital is invested by the owner itself, here liability of the owner in
unlimited. His or her personal property is used in order to pay all business debts. They are
known as self employed and have their own rules in their business. Example freelancers,
economy workers etc.
Partnerships refers to those firms which is run by two or more partners. Under such business
capital is is given by both partners. Profit is shared by every partner in the expected ratio. In
simple words it is the agreement between two or more partners to manage and run the business.
Partnerships are of many types which are profits equally partnership, partners having limited
liability, partners sharing liability etc. partnership firms are easy to form and they are more tax
friendly then the company. Examples of partnership firms- spotify and uber, airbnb and filpkart
etc.
companies are formed by the group of people who have limited liabilities in the business.
Company is also called as the artificial person because it has its own identity. There are many
companies which are listed on the stock exchange so that public can trade with with. Public
purchases shares of the company and becomes owner of the company (Li, Niskanen and
Niskanen, 2018). Company are of two types which are private and public. Profit which is earned
by the company is shared with their shareholder by giving them dividend. Company is bind in
various legal obligations. Company received their funding from investors or general public.
Example- marks and Spenser, Burberry etc.
sole trader, partnerships and companies exist because so people get employment. Government
also supports many businesses and design flexible policies and practices so that they can grow
and big large organisation and then they will provide employment to many people (Cerpentier
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and et.al., 2021). Existence of more growing enterprise also helps in the economic development
of the company. People who want to own their owner business can opt for sole trader option or
partnership option. And those people who are not interested to start their own business can
choose to work in companies.
Distinction between share capital and long term debt
Share capital refers to the money or funds which are raised by the company through various
stock exchange (Weetman, 2019). company raise initial public offering and invite public for
purchasing shares of the company. In the balance sheet, share capital falls under shareholder's
equity section.
Long term debt is the kind of debt which is taken by the business and long term debt have the
maturity of more than 12 months. In the liability side of the balance sheet it is denoted as the non
current liability. Example of Long term debt are term loans, mortgage loans etc. bank loan which
is pone of the simplest form of debt is provided by bank on the basis of collateral.
Long term debt is taken by the company by third party whereas equity is the fund which is
obtained by general public (Difference Between Debt and Equity., 2018). Share capital is fund
which is owned by company only and long term debt are the loan funds. In the share capital
company have no obligation to pay back money to the shareholders but in the long term debt
company is having the obligation to pay back the funds to the borrower which can be the banks,
other financial institution etc. share capital is for long term and debt are not for long term. To
issue share capital is costly but minimum cost is incurred to take loan from the bank. Company
has to pay interest on the amount which is borrowed by them whereas in share capital company
has to pay dividend to the shareholders only if company have incurred profit.
Long term debt is paid by the company in every condition whether business make profit or loss
but they have to pay instalment of the loan. Dividend in share capital in irregular while interest
payment I debt is regular. Company require collateral if they wanted to take loan for financial
institution but in the case of share capital no collateral is needed (Barro and Davenport, 2019).
Listed companies fulfils their funds related needs through share capital and by taking long term
debt from the banks. In the case of liquidation, company is not entitled to pay any return to share
holders but in case of debt in the case of liquidation company have to pay back to all their long
term debts.
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CONCLUSION
Through this report it can be concluded that majorly enterprises are of three types which are sole
proprietorship. Company and partnerships. These types of businesses exists because they are
necessary and also contribute in the economy of the country. Sole trader is the business which is
owned by an individual whereas partnership firms are the agreement which is done between
more than two parties and companies are the registered firm which is form by group of people.
Report has critically discussed differences in the long term debt and share capital. Share capital
is the owned money of company and long term debt refers to the funds which care borrowed by
the company.
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REFERENCE
Books and Journals
Barro, S. and Davenport, T.H., 2019. People and machines: Partners in innovation. MIT Sloan
Management Review. 60(4). pp.22-28.
Cerpentier, M. and et.al., 2021. Equity crowdfunding, market timing, and firm capital
structure. The Journal of Technology Transfer, pp.1-28.
Li, K., Niskanen, J. and Niskanen, M., 2018. Capital structure and firm performance in
European SMEs: Does credit risk make a difference?. Managerial Finance.
Szilárd, S., Benedek, A. and Ionel-Cioca, L., 2018. Soft skills development needs and methods
in micro-companies of ICT sector. Procedia-Social and Behavioral Sciences. 238.
pp.94-103.
Weetman, P., 2019. Financial and management accounting. Pearson UK.
Online
Difference Between Debt and Equity., 2018. [Online]. Available through
<https://keydifferences.com/difference-between-debt-and-equity.html>
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