Choosing the best legal structure or
business type is become an important decision in the start-up process, since it
directly affects to the company’s goals and objectives.
Limited company is a company which is
registered under the company act no: 7 of 2007, with interminable existence,
owned by shareholders and raising capital by issuing shares.
Partnership can be defined as a business
who are conducted by two or more people with a target of attain profit.
In order to provide recommendations
strength and weakness of Partnership and Limited Company as follows;
& Weaknesses of a Limited Company
Legal personality –
Limited Company can be considered as a legal person. Company act as
a free-standing entity from its owners. This will admitted to enter
company to acquire assets, contracts & pay taxes in its name.
Responsibility for business debts – Limited company has limited liability for their members. Shareholders
are not personally liable to company debts.
Interminable Existence – Limited company has a feature of interminable existence.
Death of a member or bankruptcy doesn’t have any effect.
Raise more capital – when companies issue higher number of shares, higher capital growth
can be achieved.
Tax Flexibility –Limited
companies consisting with higher tax flexibility which become an
advantage in making right decisions at the end of the year.
Inability Raise capital in the start-up process –
Limited companies unable to raise capital
due to low financial strength.
legal requirements – Company structure bound with
complicated legal requirements which make hard to conduct
Profits & ownership – all the shareholders share profits and ownership
Complicated Accounts – Higher Accounting cost for Professional Accountants which is
Strengths & Weaknesses of Partnership
Easy to commence –
Due to low regulations, Partnership businesses are easy to commence
A pool of different skills of partners –Special ,different skills of partners can be utilized
Shared Responsibility – Losses can be shared among partners using a ratio instead of
holding losses in an unequal manner. Liability which arising from
Partnership Business is also shared among partners.
High flexibility –Provides
higher flexibility to manage the business since it has low strict
More Capital –More
capital can generated by involving more partners investing in the company
lead to business growth.
Instable existence- A
partnership can be terminated due to any serious matter happen to partners
Unlimited liability –Partners
have has unlimited liability for the business.
No legal personality –Partnership do not have legal personality, partners have to use
their own names.
Shared Profit – Partners
have to share the profit according to the profit sharing ratio.
Dispute among partners –When expanding business for different reasons, more partners involved
with different opinions tend to increase disagreements.
My recommendation for Fernando & Perera
is to start the restaurant as a partnership, taking easy to commence advantage
gain more capital and expand it slowly as a Limited company where the company can
enjoy legal personality, interminable existence and limited liability.
between Financial accounting & Management accounting
Financial accounting is the type of
accounting which provide financial details of monetary transactions happened
during the period of a business according to the accounting standards and principles.
It includes income statements, statement of financial position, cash flows etc.
Management accounting is prepared to provide information to managers to evaluate
and manage day to day operations of the entity including monetary and non-monetary transaction.
The main objective of financial accounting
is to provide useful information to its
stakeholders such as Mangers, suppliers, customers government etc. it is a compulsory document prepared annually,
whereas management accounting is prepared for
internal use especially
for managers to take decisions regarding optimizing use of resources, imposing
new strategies, managing business activity. This document is not compulsory and is not prepared annual basis.