Partnership and Limited Company are 02 of main structures of
forming a business.
Partnership defined as a legal form of business operation
between two or more individuals who share management and profits.
Partnership considered to be a more simpler and less expensive
structure to establish a new business. Partnership consist of following
Opportunity to invest more capital into the business, with the availability of more
Flexibility – A
Partnership generally easier to form due to less governing laws and lower start-up
– Members able to share the responsibility which reduces business risk.
Making – Collaborative decision-making leads to more accurate decisions.
Unlimited Liability –
Each of the partners must share the unlimited liability and financial risks of
Disputes – Partners are likely to have various opinions on running the
business, where there is a possibility of disagreements and disputes which can
have negative impact on the business.
Profit Sharing –
Partners share the profits of the business equally which can lead to
inconsistency for the partners who put more effort and capital when running the
Partners must pay tax to government on behalf of business.
Limited Company is a legal form of a business structure
which protects the owner’s personal assets from financial liability where the
business itself accepted as separate entity from its owners by law.
Limited Company is more expensive and more advanced business
form compared to partnership and it consists of following strengths and
Limited Liability –
This is the main benefit of Limited Company. This means if business becomes
bankrupted, its members liability limited only to the amount of their
High Capital – Limited
Company can sell shares among its members and since there are more members it
offers business to gather more funding for the growth of the business.
Entity – Limited Companies considered as separate legal entity from its
owners by law.
Tax Advantages –
Limited Companies are taxed on their profits and such are not subject to pay
higher income tax which benefit its directors and members.
Cost – There are
more start-up expenses occur when starting a Limited Company.
Raising – Limited Company only allowed raise capital via sale of share to
its members and cannot offer shares to public.
– It is compulsory by law to maintain accounts for each financial year.
Dilution of Powers
– Since Limited companies can buy shares, there is a risk of turnover.
Mr. Fernando and Perera should start their restaurant
business as a Partnership. They will be able to take advantage of flexibility
compared to more governing laws of Limited Company. In this regard, they will
only require to prepare a partnership contract or follow the general guidelines
given by law whereas they do not need to spent more time and money for starting
up the business. Since this is a start-up business they will require less
start-up capital but if they require more funding in long term, they can
convert Partnership into a Limited Company which offer more funding options. In
order to avoid disputes occur regarding Partnership, they can prepare a
partnership contract. Mr. Fernando and Perera will be able to recruit high-calibre
professionals as partners which can lead to growth of business. Therefore,
Partnership offers more flexible and simpler business structure to start a
restaurant without much legal restrictions by the government.
Financial Accounting and Management Accounting are 02 main
aspects of the Accounting. There are following distinctions between Financial
Accounting and Management Accounting.
Purpose – The purpose
of financial accounting is to deliver financial information to the relevant
parties such as investors, regulators, tax authorities. This financial
information are distributed among both internal and external parties such as
shareholders, regulators. Purpose of Management Accounting is to deliver
information to internal parties of the business such as managers for decision-making
of the business. In this regard, Financial Management communicate information
to both internal and external parties whereas Management Accounting communicate
information only to internal parties.
Time Period –
Financial Accounting Statements are prepared for a financial year. These
statements prepared by using data of past transactions. Therefore, Financial
Accounting uses historical (past) data for reporting. On the contrary,
Management Accounting reports are not prepared for a specific time period where
Management Accounting uses forecasted data to prepare reports such as budgets,
forecasts. Therefore, Management Accounting uses future oriented data whereas
Financial Accounting uses past oriented data.
Financial Accounting reporting has various standards to be followed. In this
case Financial Accounting reporting must comply with standards given by the
responsible financial authorities whereas Management Accounting does not
require to comply with any standards since the information is prepared for