Principles Of Account (O/N lvls)

CHAPTER 1

1.1 Forms of Business Ownership

NUMBER OF OWNERS

Sole proprietorship : 1 owner

Limited Liability Partnership (LLP) : 2 or more partners

Private Limited Company : Owned by 50 or less shareholders and each shareholder contributes capital via the purchase of shares

HOW THE BUSINESS IS MANAGED

Sole proprietorship : Owner usually manages the business himself and has full control over the running of the business

Limited Liability Partnership (LLP) : Management of the business is shared between the partners, with at least one partner heavily involved in running the business. The partners may hire professional managers to assist them

Private Limited Company : Shareholders are usually not involved in managing the business, unless they are part of the management team. Professionals are hired to managed the business

AMOUNT OF REWARD & LEVEL OF INVESTMENT RISK

Sole proprietorship : Owner assumes all the profits and losses of the business. If the business fails, owner bears all the debt

Limited Liability Partnership (LLP) : Partners do not assume debts and losses personally. If the business suffers loses or debts as a result of wrongful actions by one of the partner, only that partner is liable

Private Limited Company : Shareholders are given a portion of the profits called dividends. If the business fails, shareholders will lose what they have invested in the business. They do not have to pay the debts of the business

EASE OF SETTING UP & MAINTAING THE BUSINESS

Sole proprietorship : Easier and less expensive to set up and maintain

Limited Liability Partnership (LLP) : Few regulatory rules to follow but one of the partners need to declare the business’ ability to service its debts

Private Limited Company : More complex and expensive to start a business. A company also has to comply with more rules and regulations

EASE OF RAISING FUNDS

Sole proprietorship : Banks may be less willing to lend money due to the lack of personal assets that can serve as collaterals.

Limited Liability Partnership (LLP) : Banks are more willing to lend as there are personal and business assets to serve as collaterals

Private Limited Company : Banks are more willing to lend to a company that is able to issue shares to raise funds

EASE OF TRANSFER OF OWNERSHIP

Sole proprietorship : Easier for the owner to transfer ownership through updating the particulars of the new owner to notify the corporate regulatory authority

Limited Liability Partnership (LLP) : All partners need to agree to the additional or withdrawal of partner(s). To be acknowledged by the corporate regulatory authority thereafter

Private Limited Company : Easier for a shareholder in a company to transfer his ownership to another

1.3 Stakeholder & Their Decision Needs

WHO ARE STAKEHOLDERS?

A stakeholder has a vested interest in a company and can either affect or be affected by a business’ operations and performance.

INTERNAL STAKEHOLDERS

Owners & Managers

Information needed : Profit and liquidity

Reason : Need to make decisions on how to plan, control, monitor and operate the business

Employees

Information needed : Profit and cash

Reason : To evaluate their career prospects with the company. To know if the business has sufficient cash to pay their salaries. To know if they can get any bonuses.

EXTERNAL STAKEHOLDERS

Investors

Information needed : Profitability, Liquidity, Retained earning account, Return on equity

Reason : To evaluate if they should maintain, increase or decrease their investment. Potential investors decide if they should invest in the business