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Outline the Accounting procedures to be followed on the admission of a new partner. 

• Revaluation of assets with share (1) of any surplus/deficit to existing partners (1) 

• Valuation of goodwill (1) 

• premium to be paid for goodwill by new partner (1) 

• sharing of any goodwill premium between existing partners (1) 

• agreement on new profit sharing ratios (1) 

• revision of existing partnership agreement (1) to include the financial details of new partner, eg capital, drawings, interest on each, salary, premium for goodwill (1) 

Advantages of a PLC 

All shareholders have limited liability and cannot be held responsible for the plc’s debts (1) - at least partner must have unlimited liability to pay for the partnership’s debts out of personal funds.  (1)

The amount of capital can be greatly increased by appealing to the public for funds (1) – the partnership’s capital is limited to the number of partners and the amount of their capital investment.  (1)

A plc is a separate entity from its owners (shareholders) (1) and continue despite a change of shareholders (1) – a partnership is not a separate entity and cannot continue if a partner were to leave or die.  (1)

A plc can raise additional capital more easily through the issue of debentures (1) – a partnership can only raise extra capital through loans which may be difficult to obtain.  (1)

The capital (ie value of shares) invested by shareholders in a plc may increase as a result of the company’s success (1) – the capital of a partner remains the same as the amount invested.  (1)

Disadvantages of a PLC 

There are more legal formalities required to set up a plc, eg Memorandum and Articles of Association (1) – a partnership can be set up with no legal requirements.  (1)

There is more legal control over a plc, eg the Companies Acts – a partnership has fewer legal restrictions with which to conform.  (1)

There are more costs involved in setting up a plc, eg printing and issuing of share certificates – a partnership can be set up with little or no cost.  (1)

Although shareholders in a plc have voting rights, their say in the company’s affairs can be out-voted by a minority who hold the majority of shares or equity (1) – each partner has a say in the affairs of the partnership.  (1)

Shareholders in a plc may not always receive a return on their investment, ie a dividend even when the company shows profit (1) – each partner will receive a share of any profit made by the firm.  (1)

Bonus shares issue

Shares are allotted free to existing shareholders (1).  A bonus issue can be financed by share premium (1).  Bonus issue encourages loyalty (1). 

Difference between preference shares and ordinary shares