Partnership to take advantage of flexibility compared to

Partnership and Limited Company are 02 of main business
formation types.

Partnership defined as a legal form of business operation
between two or more individuals who share management and profits.

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Partnership considered as a more simpler and less expensive
type to form a new business. Partnership consist of following strengths
weaknesses.

Strengths

Capital –
Opportunity to invest more start-up capital, since there are more partners.

Flexibility – A
Partnership generally easier to establish due to less governing laws and
start-up costs are low.

Shared Responsibility
– Members share the responsibility which reduces business risk.

Accurate Decision
Making – Collaborative decision making helps to make more accurate
decisions.

Weaknesses

Unlimited Liability –
Each of the partners have to share the unlimited liability and financial risks
of the business.

Disagreements and
Disputes – Partners are likely to have different ideas on running the
business, where this can lead to disgreements and disputes which has 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 capital and effort when running the
business.

Taxation –
Partners have to 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 considered as separate entity from it’s owners.

LC is more advanced and more expensive business form,
compared to partnership and it consisi of following strengths and advantages.

Strengths

Limited Liability –
This is the main benefit of LC. This means if business becomes bankrupted, its
members liability limited to amount of their investments.

High Capital -Since there are more members it offers
business to gather more funding for the growth of the business.

Separate 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.

Weaknesses

Cost – There are more set-up expenses occur when starting a
Limited Company.

Restricted Capital Raising – Limited Compay only allowed
raise capital via sale of share to its members and cannot offer shares to
public.

Complex Accounts – It is compulsory to maintain accounts for
each financial year by law.

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 required 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 grow the business.
Therefore Partnership offers more flexible business structure to start a
restaurant without much legal restrictions by the government.

Question 02

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 communicate 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.

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 other hand 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.

Standards –
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 internal consumption.