1 Strength and Weaknesses of Partnership andLimited Company To start up a restaurant is indeed an intimidating task asit has to create a menu, pick up all the materials required and another hardtask is the legal side. Due to two people involved, Sole proprietorship needsto be stroked off and so is Corporation due to no large company or group ofcompanies so Fernando and Perera is left with either a partnership or a LimitedCompany(LC) for the new start-up restaurant. 1.1 Strengthand Weaknesses of Partnership A partnership is a business organisation where either two ormore people pool money and skills and accordingly share profits and liabilitiesof the business as per the partnership agreement. Two heads/more are betterthan one. More partners, more money as start-up capital, thereby easy to establish,high borrowing capacity and profit which is equally shared.
Theresponsibilities of running the business can be split up and will benefit froma combination of skills due to more brains and will lead to cost effectiveness.As decision-making power is shared, more ideas. Less strictly regulated andthereby easy to change the legal structure as far as partners can agree.Weaknesses arefriction among partners due to different ideas on how the business needs torun.
Less freedom as partners need to agree on things they don’t want to due toa jointly run, yet partnership is comparatively more flexible than LC.Partnership have a limited life as it may end up in a death of a partner or awithdrawal or due to a dramatic split up as decisions are shared, thereby alimitation in becoming a large business. One major problem is unlimitedliability. Since, it’s ‘jointly’ each partner is responsible/liable for theirshare as well as all debts.
Inconsistency caused due to equally sharing profitsas equal efforts are not put by partners. 1.2 Strengthand Weaknesses of Limited Company Limited company (LC) is a form ofincorporation where liability is limited whose share capital is restricted byits memorandum of association. Main benefits in running a LC is the limitedliability, meaning only the shareholders are liable for the debts according totheir investment levels where no personal liability. LC is preferred byinvestors due to the high financial security. Even after a death of a member,the company will exist by ensuring the job security of the employees as LC is aseparate legal entity.
More favourable taxation rates asthey are quite lower comparatively.LC is costly toestablish and manage due to its complicated rules and regulations and also morecapital that is hard to raise is required. Accounts are complex and theaccountancy fee is relatively high and consumes time.
Due to the large natureof business, LC is costly. Has less privacy as the financial affairs are publicand also less flexibility due to losses made by a company are used by thecompany. 2 Recommendations It’simpossible to tell how the business would do in the future. As a ‘start-up’,would look on the short term first, meaning the advantages of starting up andrunning.
The recommended would be a partnership at the beginning easy start up,more capital due to borrowing capacity high, simply its flexibility is high. Apartnership is beneficial if the business is at success however partners needto be aware of what’s at stake before starting it. But I would also recommendit to change to a limited company in the future when the business is atsuccess. This way the company has more money to run and personal assets wouldbe safe and employee accidents wouldn’t be the end of the world. It’s inyour best interest to register as an LLC to keep your business That way, evenif something happens, you can keep following your dream of building asuccessful brand. Q2 3 Main Distinctions between Financial Accountingand Management Accounting Financial Accounting Management Accounting For External Users For Internal Users Evaluates financial position Decision Making Historical Orientation Future Orientation In FA, financialinformation is needed for the external users to evaluate the financial positionof the organisation.
Financial reports are prepared according to the historicalinformation and are concerned about the results achieved, so it’s historicallyoriented. These reports are usually prepared to the statutory requirements and issuedat the end of the accounting period.In MA, financialinformation is used by the internal users for decision making where mostlydeals with estimates than verifiable facts and may address budgets and forecastto have future orientation.
Here, the management accounts need to be preparedas per the management requirement unlike in FA and the reports areissued more frequently so managers can look through them right away.