Strengths Limited Company What is a BusinessStrengths Limited Company What is a Business

Strengths and Weaknesses of Business Partnerships and Limited
Company

 

What
is a Business partnership?

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Partnership is a voluntary
association of two or more persons to act as co-owners of a business for
profit.

What
is a Limited Corporation?

A company that does not issue
shares, the members of which undertake to contribute to the assets of the
company in the event of liquidation in an amount specified in the company’s
articles.

Strengths
of Business Partnership

·        
Starting,
managing and running a business partnership is comparatively easier than
incorporating a limited company because rules governing regulations are less
compared to a limited company.

 

·        
Due
to the reason that partnerships are not separated from owners, members can
inject assets into the business at any time and also can withdraw more earnings
out of the business.

 

·        
Cost
of starting up and maintaining a Business Partnership is less than starting and
maintaining a limited liability company. Registration fees when forming the
business and paperwork expenses are relatively less than the limited
company. 

 

·        
Partnership
is not considered as a separate entity from its owners. Due to this reason
profits are only taxed once rather than twice.

 

·        
Taking
a decision is faster in Partnerships than following company procedures in a
limited company.

Weaknesses
of Business Partnership

·        
Life
time of a Partnership is limited to the end date of Partnership agreement.
Business Partnership dissolve if one of the partners dies, retires or withdraws
unless the leaving partner is not a limited partner.

 

·        
Unlimited
liability cause to make partners liable for the debts. If the business runs
excessive debts partners have an unlimited liability to settle them even using
their personal assets.

 

 

·        
Partnerships
have the less possibility to make as much as capital relatively to the Limited
company.

  

·        
Disputes
among partners can easily come up and harm the business and also relationship
between partners.

 

·        
Having
an unlimited liability, limited funding opportunities and lack of commercial
status cause to the development of business.

 

Strengths
of Limited Company

·        
Unlikely
partnerships, liability of owners of a limited liability company is limited to
their investment in the company. Owners do not have to use their personal assets
to settle company liabilities.

 

·        
Life
time of an incorporated company does not limited to the life time of a member
or does not wind up after when one member leaving the company.

 

·        
Growth
potential and public acceptance of a limited liability company is higher than
partnerships due to legal background of the company.

 

·        
Even
though limited liability companies cannot issue shares to the public it have
potential to raise capital by giving the membership to maximum number of 50
people.

 

·        
Limited
liability companies have proper management and decision making structure which
complies with legal requirements.

Disadvantages
of Limited Liability Company

·        
Rules
and regulations are relatively higher than Partnerships. Must follow governing
regulations under Company Act and other related corporate laws.

 

·        
Administration
cost of a limited company is higher than partnerships because limited companies
have to maintain records properly.

 

·        
Transferring,
Winding up a limited liability company is less flexible compared to a partnership.

 

·        
A
proper documentation procedure is required in order conduct audits in a limited
liability company. This consumes time and relatively costlier than a
partnership.

Partnerships and Limited
liability companies have both advantages and disadvantages. Choosing a business
type depend on how owners are going to handle the business in the future. If
Perera and Fernando intending to raise higher capital and a growth with a
separate legal entity, suitable method is incorporating a limited company. On the
other hand if they are searching for a flexible and less costly business type
they should start as a partnership.

Difference between Financial Accounting & Management
Accounting

Financial
Accounting

·        
Data
provided by Financial Accounting reports interprets the historical performance
of a company in order to take decisions about future performance of company.

·        
Objective
of Financial Accounting is to provide information about financial performance
to external parties in order to take investment decisions about the company.

·        
Financial
Accounting reports are prepared for a standard accounting time period, usually
it is considered as a year.

Management
Accounting

·        
Information
provided by Management Accounting reports are based on current performance and
future trends of the company and the industry.

·        
Data
provided by Management accounting is used by internal members of the company to
take current and future financial decisions.

·        
There
is no standard time period to prepare Management Accounting reports. Those are
prepared when there is a requirement to the company.

 

References

·        
Pride, Hughes, Kapoor., 2008. Foundations of Business. 2nd ed. USA:
South-Western Cengage Learning.

·        
Companies
Act,
No.7 of 2007. Sri Lanka. Available at:

http://www.drc.gov.lk/App/comreg.nsf/200392d5acdb66c246256b76001be7d8/$FILE/Act%207%20of%202007%20
(English).pdf (Accessed: 20th January 2018)