This Research Are Regarding the Differentiate Type of Business for Sole Proprietorship

INTRODUCTION.

This research are regarding the differentiate type of business for Sole Proprietorship, Partnership, Private Limited Company and Public Limited Company and also to define Accounting Period and the concept of going concern.

The definition of Sole Proprietorship is a businessstructure in which an individual and his/her company are considered a singleentity for tax and liability purposes. A sole proprietorship is a company which is not registered with the state as a limited liability company or corporation. The owner does not pay income tax separately for the company, but he/she reports business income or losses on his/her individual income tax return. The owner is inseparable from the sole proprietorship, so he/she is liable for any business debts,also called proprietorship.

The definition of Partnership is a type of businessorganization in which two or more individualspoolmoney, skills, and other resources, and shareprofit and loss in accordance with terms of the partnership agreement. In absence of such agreement, a partnership is assumed to exit where the participants in an enterprise agree to share the associatedrisks and rewards proportionately.

The definition of Private Limited Company is a type of company that offerslimited liability, or legalprotection for its shareholders but that places certain restrictions on its ownership. These restrictions are defined in the company'sbylaws or regulations and are meant to prevent any hostile takeover attempt.

The definition of Public Limited Company is a company whose securities are traded on a stock exchange and can be bought and sold by anyone. Public companies are strictly regulated, and are required by law to publish their complete and true financial position so that investors can determine the true worth of its stock (shares). Also called publicly held company. Public limited company and its abbreviation Plc are commonly used in the UK in the way that corporation and Inc. is used in the United States.

ADVANTAGES AND DISADVANTAGES.

Every types of business have their own advantages and disadvantages. Below are the the explaination of the advantages and disadvantages for each type of businesses.

Advantages of the Sole Proprietorship. A sole proprietorship has complete control and decision making power over the business. Sale or transfer can take place at the discretion of the sole proprietor. There are no corporate tax payments. Have minimal legal costs to forming a sole proprietorship. There also have a few formal business requirements.

Disadvantages of the Sole Proprietorship. The sole proprietorship of the business can be held personally liable for the debts and obligations of the business. Additionally, this risk extends to any liabilities incurred as a result of acts committed by employees of the company. All responsibilities and business decisions fall on the shoulders of the sole proprietor. Investors won’t usually invest in sole proprietorship.

Advantages of Partnership. Partnerships are relatively easy to establish. With more than one owner, the ability to raise funds may be increased, both because two or more partners may be able to contribute more funds and because their borrowing capacity may be greater. Furthermore, Prospective employees may be attracted to the business if given the incentive to become a partner. A partnership may benefit from the combination of complimentary skills of two or more people. There is a wider pool of knowledge, skills and contacts. Partnerships can be cost-effective as each partner specializes in certain aspects of their business.Partnerships provide moral support and will allow for more creative brainstorming.

Disadvantages of Partnership. Business partners are jointly and individually liable for the actions of the other partners. Profits must be shared with others. We have to decide on how we value each other’s time and skills. Since decisions are shared, disagreements can occur. A partnership is for the long term, and expectations and situations can change, which can lead to dramatic and traumatic split ups. The partnership may have a limited life; it may end upon the withdrawal or death of a partner. A partnership usually has limitations that keep it from becoming a large business. We have to consult our partner and negotiate more as we cannot make decisions by ourself. We therefore need to be more flexible. A major disadvantage of a partnership is unlimited liability. General partners are liable without limit for all debts contracted and errors made by the partnership.

Advantages of Private Limited Company. Limited Liability: It means that if the company experience financial distress because of normal business activity, the personal assets of shareholders will not be at risk of being seized by creditors.Continuity of existence: business not affected by the status of the owner.Minimum number of shareholders need to start the business are only two.More capital can be raised as the maximum number of shareholders allowed is 50.Scope of expansion is higher because easy to raise capital from financial institutions and the advantage of limited liability.

Disadvantages of Private Limited Company. The main disadvantage of a private limited company is that the profits of the business must be shared. Since a corporation, whether private or public, is governed by a board of directors that, in a sense, represent shareholders, the company, in fact, has many owners and two layers of managers. This means that the single founder of the business must share all the profits.

Advantages of Public Limited Company. There islimited liabilityfor the shareholders. The business hasseparate legal entity. There is continuity even if any of the shareholders die. These businesses canraise large capitalsum as there is no limit to the number of shareholders. The shares of the business arefreely transferableproviding more liquidity to its shareholders .

Disadvantages of Public Limited Company. There are lot oflegal formalitiesrequired for forming a public limited company. It is costly and time consuming. In order to protect the interest of the ordinary investor there arestrict controls and regulationsto comply. These companies have to publish their accounts. The original owners maylose control. Public Limited companies are huge in size and may facemanagement problemssuch as slow decision making and industrial relations problems.

DEFINITION.

For this part, I will explain about the define Accounting Period and the concept of going concern.

The time span in which certain financial events took place. The accounting period is generally a quarter or a year and reflects all of the financial activity that occurred during that time. However, it should be noted that even though accounting periods tend to be generically similar and encompass a like amount of time. The start and end dates of those time periods can be drastically different. Not all companies begin their fiscal year in January. Likewise, not every final quarter ends in December.

Going concernconcept is a basicprincipleinaccountingthatassumesa company will continue tooperatein the foreseeable future. The significance of this principle becomes apparent when thevalueof a runningbusinessis compared with the value of one beingliquidated.The moment a business is declared liquidated, alldebtsbecome immediatelyduein full,tangible assetsareworthonly what they will be sold for in anauctionorfire-sale, and theintangible assets(such asgoodwill) become worthless. Agoing concernis the only type of businessbankslendmoneyto, andsuppliersextendcreditto.

Directorsofpublicly tradedcompaniesmust explicitly state in theirfinancial statements(verified through anindependent audit) that they have taken allreasonablesteps to ensure thecontinuingviability of the company as a going concern. Also called continuity ofbusiness unitprinciple.

ADVANTAGES AND DISADVANTAGES.

There also have advantages and disadvantages of Accounting Period. Advantagesof payback period are payback period is quite simple to calculate.It can be a measure of risk inherent in a project. Since cash flows that occur later in a project's life are considered more uncertain, payback period provides an indication of how certain the project cash inflows are.For companies facing liquidity problems, it provides a good ranking of projects that would return money early.

Disadvantagesof payback period are payback period does not take into account thetime value of moneywhich is a serious drawback since it could lead to wrong decisions. A variation of payback method that attempts to remove this drawback is calleddiscounted payback periodmethod. It does not take into account, the cash flows that occur after the payback period is reached.

Advantages of going concern concept.It provides a sound basis for the income or profit measurement. It means that the items which provide future economic benefit or which are used for more than one year are recorded a fixed assets rather than as expenses only because of the going concern assumption.The going concern assumption facilitates the classification of assets and liabilities into short-term and long-term respectively. It is due to the going concern concept that the assets and liabilities appear in the books at cost or book value, as the case may be and not at the market price since the assets are not intended for sale.This assumption is of great help to the investors because they are assured that the business enterprise will continue to function in the expected manner performing all the business activities in accordance with the pre-determined goals.Current assets are valued at lower of cost or market value in the normal course of the business. Information about the consequences of the liquidation is not given.

Disadvantages of going concern concept.If a business concern prepares financial statements on a going concern basis, when it is not actually so, this has a serious reflection on the truth and fairness of the financial statements. It may therefore mislead because so many firms close down (especially during periods of Recession) after the publication of their accounts which have been drawn up on the basis of the going concern principle. Liabilities that will arise in the event of liquidation are ignored thereby depriving the unsecured creditors of important information. Alternative courses of action cannot be evaluated.